hubgroup10k2007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of
1934
For
the
fiscal year ended December 31, 2007
OR
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
Commission
File No. 0-27754
__________________
HUB
GROUP, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
36-4007085
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
of organization)
|
Identification
No.)
|
3050
Highland Parkway, Suite 100
Downers
Grove, Illinois 60515
(Address
and zip code of principal executive offices)
(630)
271-3600
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Class
A Common Stock, $.01 par value
(Title
of
Class)
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
X No
__
Indicate
by check mark if Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes
No
X
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes X No
__
Indicate
by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III
of this Form 10-K or any amendment to this Form 10-K. X
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
Accelerated Filer X Accelerated
Filer
Non-Accelerated
Filer
Smaller Reporting
Company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
No
X
The
aggregate market value of the Registrant’s voting stock held by non-affiliates
on June 30, 2007, based upon the last reported sale price on that date on the
NASDAQ Global Select Market of $35.16 per share, was
$1,296,834,197.
On
February 19, 2008, the Registrant had 36,972,648 outstanding shares of
Class A Common Stock, par value $.01 per share, and 662,296 outstanding shares
of Class B Common Stock, par value $.01 per share.
Documents
Incorporated by Reference
The
Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on May 14, 2008 (the “Proxy Statement”) is incorporated by reference
in Part III of this Form 10-K to the extent stated herein. Except with respect
to information specifically incorporated by reference in this Form 10-K, the
Proxy Statement is not deemed to be filed as a part hereof.
Item
1.
BUSINESS
General
Hub
Group, Inc. (“Company”, “we”, “us” or “our”) is a Delaware corporation that was
incorporated on March 8, 1995. We are one of North America’s leading
asset-light freight transportation management companies. We offer
comprehensive intermodal, truck brokerage and logistics
services. Since our founding in 1971, we have grown to become the
largest intermodal marketing company (“IMC”) in the United States and one of the
largest truck brokers.
We
operate through a network of 21 operating centers throughout the United States
and Canada. Each operating center is strategically located in a
market with a significant concentration of shipping customers and one or more
railheads. Through our network, we have the ability to move freight
in and out of every major city in the United States, Canada and
Mexico. We service a large and diversified customer base in a broad
range of industries, including consumer products, retail and durable
goods. We utilize an asset-light strategy in order to minimize our
investment in equipment and facilities and reduce our capital
requirements. We arrange freight movement for our customers through
transportation carriers and equipment providers.
We
sold
substantially all of the assets of Hub Group Distribution Services, LLC (“HGDS”
or “Hub Distribution”) to the President of the former subsidiary on May 1,
2006. Accordingly, the results of operations of HGDS for the years
ended December 31, 2006 and 2005 have been reported as discontinued
operations.
Services
Provided
Our
transportation services can be broadly placed into the following
categories:
Intermodal.
As an
IMC, we arrange for the movement of our customers’ freight in containers and
trailers, typically over long distances of 750 miles or more. We
contract with railroads to provide transportation for the long-haul portion
of
the shipment and with local trucking companies, known as “drayage companies,”
for pickup and delivery. In certain markets, we supplement third
party drayage services with Company-owned drayage operations. As part
of our intermodal services, we negotiate rail and drayage rates, electronically
track shipments in transit, consolidate billing and handle claims for freight
loss or damage on behalf of our customers.
We
use our network to access
containers and trailers owned by leasing companies, railroads and steamship
lines. We are able to track trailers and containers entering a
service area and reuse that equipment to fulfill the customers’ outbound
shipping requirements. This effectively allows us to “capture”
containers and trailers and keep them within our network. As of
December 31, 2007, we also have exclusive access to approximately 2,935
rail-owned containers for our dedicated use on the Burlington Northern Santa
Fe
(“BNSF”) and the Norfolk Southern (“NS”) rail networks and approximately 3,175
rail-owned containers for our dedicated use on the Union Pacific (“UP”) and the
NS rail networks. In addition to these containers, during 2005, 2006
and 2007, we added a total of 7,400 new 53’ containers for use on the BNSF and
NS. We financed these containers with operating
leases. These arrangements are included in Note 7 to the consolidated
financial statements.
Through
our subsidiary Comtrak Logistics, Inc. (“Comtrak”), we acquired substantially
all the assets of Comtrak, Inc. at the close of business on February 28,
2006. Comtrak is a transportation company whose services include
primarily rail and international drayage for the intermodal
sector. The results of Comtrak are included in our results of
operations from March 1, 2006, its date of acquisition.
Our
drayage services are provided by our subsidiaries, Comtrak and Quality Services,
LLC (“QS”) who assist us in providing reliable, cost effective intermodal
services to our customers. Our subsidiaries have terminals in
Atlanta, Birmingham, Charleston, Charlotte, Chattanooga, Chicago, Cleveland,
Columbus, Dallas, Huntsville, Jacksonville, Kansas City, Los Angeles, Memphis,
Nashville, Perry, Savannah, St. Louis, Stockton, and Tampa. As of
December 31, 2007, QS and Comtrak owned 329 tractors, leased 23 tractors, leased
or owned 706 trailers and employed 331 drivers and contracted with 845
owner-operators.
Truck
Brokerage (Highway
Services). We are one of the largest truck brokers in the United
States, providing customers with another option for their transportation
needs. We match the customers’ needs with carriers’ capacity to
provide the most effective service and price combinations. We have
contracts with a substantial base of carriers allowing us to meet the varied
needs of our customers. As part of the truck brokerage services, we
negotiate rates, track shipments in transit and handle claims for freight loss
and damage on behalf of our customers.
Our
truck brokerage operation also
provides customers with specialized programs. Through the Dedicated
Trucking Program, certain carriers have informally agreed to move freight for
our customers on a continuous basis. This arrangement allows us to
effectively meet our customers’ needs without owning the equipment.
Logistics. Our
logistics business operates under the name of Unyson
Logistics. Unyson Logistics is comprised of a network of logistics
professionals dedicated to developing, implementing and operating customized
logistics solutions. Unyson offers a wide range of transportation
management services and technology solutions including shipment optimization,
load consolidation, mode selection, carrier management, load planning and
execution and web-based shipment visibility. Our multi-modal
transportation capabilities include small parcel, heavyweight, expedited,
less-than-truckload, truckload, intermodal and railcar. Unyson
Logistics operates throughout North America with offices strategically located
in key market areas.
Hub
Network
Hub
Group
currently has operating centers in the following metropolitan
areas:
Atlanta
|
Indianapolis
|
Minneapolis
|
St.
Louis
|
Baltimore
|
Kansas
City
|
New
York City
|
Toledo
|
Boston
|
Laredo
|
Pittsburgh
|
Toronto
|
Chicago
|
Los
Angeles
|
Salt
Lake City
|
|
Cleveland
|
Memphis
|
San
Diego
|
|
Houston
|
Milwaukee
|
San
Francisco
|
|
|
|
|
|
Our entire network is interactively connected through our proprietary
Network Management System. This enables us to move freight into and out of
every
major city in the United States, Canada and Mexico.
Each
operating center manages the freight originating in its service area. In a
typical intermodal transaction, the customer contacts the local operating center
to place an order. The operating center consults with the centralized pricing
group, obtains the necessary intermodal equipment, arranges for it to be
delivered to the customer by a drayage company and, after the freight is loaded,
arranges for the transportation of the container or trailer to the rail ramp.
Relevant information is entered into our Network Management System by the
assigned operating center. Our predictive track and trace technology then
monitors the shipment to ensure that it arrives as scheduled and alerts the
customer service personnel if there are service delays. The assigned operating
center then arranges for and confirms delivery by a drayage company at
destination. After unloading, the empty equipment is made available for
reloading by the local operating center in the delivery market.
We
provide truck brokerage services to our customers in a similar manner. In a
typical truck brokerage transaction, the customer contacts the local operating
center to obtain a price quote for a particular freight movement. The customer
then provides appropriate shipping information to the local operating center.
The local operating center makes the delivery appointment and arranges with
the
appropriate carrier to pick up the freight. Once it receives confirmation that
the freight has been picked up, the local operating center monitors the movement
of the freight until it reaches its destination and the delivery has been
confirmed. If the carrier notifies us that after delivering the load it will
need additional freight, we may notify the operating center located nearest
the
destination of the carrier’s availability. Although under no
obligation to do so, the local operating center then may attempt to secure
freight for the carrier.
Marketing
and Customers
We
believe that fostering long-term
customer relationships is critical to our success. Through these
long-term relationships, we are able to better understand our customers’ needs
and tailor our transportation services to the specific customer, regardless
of
the customer’s size or volume. We currently have full-time marketing
representatives at various operating centers and sales offices with primary
responsibility for servicing local, regional and national
accounts. These sales representatives directly or indirectly report
to our Chief Marketing Officer. This model allows us to provide our
customers with both a local marketing contact and access to our competitive
rates as a result of being a large, national transportation service
provider.
Our
marketing efforts have produced a
large, diverse customer base, with no customer representing more than 5% of
our
total revenue in 2007. We service customers in a wide variety of
industries, including consumer products, retail and durable goods.
We
maintain a joint marketing
relationship with TMM Logistics, a wholly owned subsidiary of Grupo TMM, a
Mexican logistics and transportation company. TMM Logistics provides
sales support and operating execution within Mexico, and we furnish the same
capabilities in Canada and the United States for TMM Logistics.
Management
Information
Systems
A
primary component of our business
strategy is the continued improvement of our Network Management System and
other
technology to ensure that we remain a leader among transportation providers
in
information processing for transportation services. Our Network
Management System consists of proprietary software running on a combination
of
platforms which includes the IBM iSeries and Microsoft Windows Server
environments located at a secure offsite data center. All of our
operating centers are linked together with the data center using an MPLS
(“Multi-Protocol Label Switching”) network. This configuration
provides a real time environment for transmitting data among our operating
centers and headquarters. We also make extensive use of electronic
commerce (“e-Commerce”), allowing each operating center to communicate
electronically with each railroad, many drayage companies, certain trucking
companies and those customers with e-Commerce capabilities.
Our
Network Management System is the
primary mechanism used in our operating centers to handle our intermodal and
truck brokerage business. The Network Management System processes
customer transportation requests, tenders and tracks shipments, prepares
customer billing, establishes account profiles and retains critical information
for analysis. The Network Management System provides connectivity with each
of
the major rail carriers. This enables us to electronically tender and track
shipments in a real time environment. In addition, the Network Management
System’s e-Commerce features offer customers with e-Commerce capability a
completely paperless process, including load tendering, shipment tracking,
billing and remittance processing. We aggressively pursue
opportunities to establish e-Commerce interfaces with our customers, railroads,
trucking companies and drayage companies.
To
manage our logistics business, we use
specialized software that includes planning and execution
solutions. This sophisticated transportation management software
enables us to offer supply chain planning and logistics managing, modeling,
optimizing and monitoring for our customers. We use this software
when offering logistics management services to customers that ship via multiple
modes, including intermodal, truckload, and less-than-truckload, allowing us
to
optimize mode and carrier selection and routing for our
customers. This software is integrated with Hub Group’s Network
Management System and our accounting system.
Our
website, www.hubgroup.com,
is designed to allow our customers and
vendors to easily do business with us online. Through Vendor
Interface, we tender loads to our drayage partners using the Internet rather
than phones or faxes. Vendor Interface also captures event status
information, allows vendors to view outstanding paperwork requirements and
helps
facilitate paperless invoicing. We currently tender substantially all of our
drayage loads using Vendor Interface or e-Commerce. Through Trucker
Advantage, we exchange information on available Hub loads, available carrier
capacity and updates to event status information with our truck brokerage
partners. Through Customer Advantage, customers receive immediate
pricing, place orders, track shipments, and review historical shipping data
through a variety of reports over the Internet. All of our Internet
applications are integrated with the Network Management
System.
Relationship
with Railroads
A
key element of our business
strategy is to strengthen our close working relationship with each of the major
intermodal railroads in the United States. We view our relationship with the
railroads as a partnership. Due to our size and relative importance, many
railroads have dedicated support personnel to focus on our day-to-day service
requirements. On a regular basis, our senior executives and each of the
railroads meet to discuss major strategic issues concerning intermodal
transportation. Several of our top executive officers are former railroad
employees, which makes them well suited to understand the railroads’ service
capabilities.
We
have relationships with each of
the following major railroads:
Burlington
Northern Santa Fe
|
Florida
East Coast
|
Canadian
National
|
Kansas
City Southern
|
Canadian
Pacific
|
Norfolk
Southern
|
CSX
|
Union
Pacific
|
We
also have relationships with each
of the following major service providers: CMA CGM (America)
Inc., Express System Intermodal Inc.,
Hanjin Shipping, Hyundai Merchant Marine, K-Line America,
Maersk Sea-Land, Mitsui O.S.K. Lines (America) Inc. and Pacer
International.
These
relationships govern the
transportation services and payment terms pursuant to which our intermodal
shipments are handled by the railroads. Transportation rates are market driven
and we typically negotiate with the railroads or other major service providers
on a route or customer specific basis. Consistent with industry practice, many
of the rates we negotiate are special commodity quotations (“SCQs”), which
provide discounts from published price lists based on competitive market factors
and are designed by the railroads or major service providers to attract new
business or to retain existing business. SCQ rates are generally issued for
the
account of a single IMC. SCQ rates apply to specific customers in
specified shipping lanes for a specific period of time, usually up to 12
months.
We
use our network to access
containers and trailers owned by leasing companies, railroads and steamship
lines. As of December 31, 2007, we also have exclusive access to
approximately 2,935 rail-owned containers for our dedicated use on the BNSF
and
the NS rail networks and approximately 3,175 rail-owned containers for our
dedicated use on the UP and the NS rail networks. In addition to
these containers, during 2005, 2006 and 2007, we added a total of 7,400 new
53’
containers for use on the BNSF and NS. We financed these containers
with operating leases. These arrangements are included in Note 7 to
the consolidated financial statements.
Relationship
with Drayage Companies
We
have a “Quality Drayage Program,”
which consists of agreements and rules that govern the framework by which many
drayage companies perform services for us. Participants in the
program commit to provide high quality service along with clean and safe
equipment, maintain a defined on-time performance level and follow specified
procedures designed to minimize freight loss and damage. We negotiate
drayage rates for transportation between specific origin and destination
points.
We
also supplement third-party
drayage services with our own drayage operations, which we operate through
our
QS and Comtrak subsidiaries. Our drayage operations employ their own
drivers and also contract with owner-operators who supply their own
trucks.
Relationship
with Trucking Companies
Our
truck brokerage operation has a
large and growing number of active trucking companies that we use to transport
freight. The local operating centers deal daily with these carriers
on an operational level. Our corporate headquarters handles the
administrative and regulatory aspects of the trucking company
relationship. Our relationships with these trucking companies are
important since these relationships determine pricing, load coverage and overall
service.
Risk
Management and Insurance
We
require all drayage companies
participating in the Quality Drayage Program to carry at least $1.0 million
in
general liability insurance, $1.0 million in truckman’s auto liability insurance
and a minimum of $100,000 in cargo insurance. Railroads, which are
self-insured, provide limited cargo protection, generally up to $250,000 per
shipment. To cover freight loss or damage when a carrier's liability
cannot be established or a carrier's insurance is insufficient to cover the
claim, we carry our own cargo insurance with a limit of $1.0 million per
container or trailer and a limit of $20.0 million in the
aggregate. We also carry general liability insurance with limits of
$1.0 million per occurrence and $2.0 million in the aggregate with a companion
$25.0 million umbrella policy on this general liability insurance.
We
maintain separate insurance
policies to cover potential exposure from our company-owned drayage
operations. We have general liability insurance with limits of $1.0
million per occurrence and $2.0 million in the aggregate, truckman’s auto
liability with limits of $1.0 million and a companion $19.0 million umbrella
liability policy.
Government
Regulation
Hub
Group, Inc. and various
subsidiaries are licensed by the Department of Transportation as brokers in
arranging for the transportation of general commodities by motor vehicle. To
the
extent that the operating centers perform truck brokerage services, they do
so
under these licenses. The Department of Transportation prescribes qualifications
for acting in this capacity, including a $10,000 surety bond that we have
posted. To date, compliance with these regulations has not had a
material adverse effect on our results of operations or financial condition.
However, the transportation industry is subject to legislative or regulatory
changes that can affect the economics of the industry by requiring changes
in
operating practices or influencing the demand for, and cost of providing,
transportation services.
Competition
The
transportation services industry
is highly competitive. We compete against other IMCs, as well as logistics
companies, third party brokers, trucking companies and railroads that market
their own intermodal services. Several larger trucking companies have entered
into agreements with railroads to market intermodal services nationwide.
Competition is based primarily on freight rates, quality of service,
reliability, transit time and scope of operations. Several
transportation service companies and trucking companies, and all of the major
railroads, have substantially greater financial and other resources than we
do.
General
Employees: As
of
December 31, 2007, we had 1,412 employees or 1,081 employees excluding drivers.
We are not a party to any collective bargaining agreement and consider our
relationship with our employees to be satisfactory.
Other: No
material
portion of our operations is subject to renegotiation of profits or termination
of contracts at the election of the federal government. None of our
trademarks are believed to be material to us. Our business is
seasonal to the extent that certain customer groups, such as retail, are
seasonal.
Periodic
Reports
Upon
written request, our annual
report to the Securities and Exchange Commission on Form 10-K for the fiscal
year ended December 31, 2007, our quarterly reports on Form 10-Q and current
reports on Form 8-K will be furnished to stockholders free of charge; write
to:
Public Relations Department, Hub Group, Inc., 3050 Highland Parkway, Suite
100,
Downers Grove, Illinois 60515. Our filings are also accessible
through our website at www.hubgroup.com
as soon as reasonably practicable after we file or furnish such reports to
the
Securities and Exchange Commission.
Item
1A.
RISK FACTORS
Since
our business is concentrated on
intermodal marketing, any decrease in demand for intermodal transportation
services compared to other transportation services could have an adverse effect
on our results of operations.
In
2007, 2006 and 2005, we derived 73% of
our revenue from our intermodal
services. As a result, any decrease in demand for intermodal transportation
services compared to other transportation services could have an adverse effect
on our results of operations.
Because
we depend on railroads for our
operations, our operating results and financial condition are likely to be
adversely affected by any reduction or deterioration in rail
service.
We
depend on the major railroads in the
United States for virtually all of the intermodal services we provide. In many
markets, rail service is limited to one or a few railroads. Consequently, a
reduction in, or elimination of, rail service to a particular market is likely
to adversely affect our ability to provide intermodal transportation services
to
some of our customers. In addition, the railroads are relatively free to adjust
shipping rates up or down as market conditions permit. Rate increases would
result in higher intermodal transportation costs, reducing the attractiveness
of
intermodal transportation compared to truck or other transportation modes,
which
could cause a decrease in demand for our services. Further, our ability to
continue to expand our intermodal transportation business is dependent upon
the
railroads’ ability to increase capacity for intermodal freight and provide
consistent service. Our business could also be adversely affected by a work
stoppage at one or more railroads or by adverse weather conditions or other
factors that hinder the railroads’ ability to provide reliable transportation
services. In the past, there have been service issues when railroads have
merged. As a result, we cannot predict what effect, if any, further
consolidation among railroads may have on intermodal transportation services
or
our results of operations.
Because
our relationships with the major
railroads are critical to our ability to provide intermodal transportation
services, our business may be adversely affected by any change to those
relationships.
We
have important relationships with
each of the major U.S. railroads. To date, the railroads have chosen to rely
on
us, other IMCs and other intermodal competitors to market their intermodal
services rather than fully developing their own marketing capabilities. If
one
or more of the major railroads were to decide to reduce their dependence on
us,
the volume of intermodal shipments we arrange would likely decline, which could
adversely affect our results of operations and financial
condition.
Because
we rely on drayage companies in
our intermodal operations, our ability to expand our business or maintain our
profitability may be adversely affected by a shortage of drayage
capacity.
cost
of providing drayage services to
our customers. Therefore, the driver shortage could also adversely affect our
profitability and limit our ability to expand our intermodal
business.
Because
we depend on trucking companies
for our truck brokerage services, our ability to maintain or expand our truck
brokerage business may be adversely affected by a shortage of trucking
capacity.
In
2007, 2006 and 2005, we derived 19%, 19% and
18%,
respectively, of our
revenue from our truck brokerage services. We depend upon various third-party
trucking companies for the transportation of our customers’ loads. Particularly
during periods of economic expansion, trucking companies may be unable to expand
their fleets due to capital constraints or chronic driver shortages, and these
trucking companies also may raise their rates. If we face insufficient capacity
among our third-party trucking companies, we may be unable to maintain or expand
our truck brokerage business. Also, we may be unable to pass rate increases
on
to our customers, which could adversely affect our
profitability.
Because
we use a
significant number of independent contractors in our businesses, proposals
from
legislative, judicial or regulatory authorities
that change
the independent
contractor classification could have a significant impact on our gross margin
and operating income.
We
use a significant number of
independent contractors in our businesses, consistent with long-standing
industry practices. There can be no assurance that legislative,
judicial, or regulatory (including tax) authorities will not introduce proposals
or assert interpretations of existing rules and regulations that would change the
independent
contractor classification of
a significant number of independent contractors doing business
with
us. Although management believes that there are no proposals
currently pending that would change the classification of independent
contractors that do business with us, the costs associated with potential
reclassifications could have a material adverse effect on results of operations
and our financial position.
We
depend on third parties for equipment
essential to operate our business, and if we fail to secure sufficient
equipment, we could lose customers and revenue.
We
depend on third parties for
transportation equipment, such as containers and trailers, necessary for the
operation of our business. Our industry has experienced equipment shortages
in
recent years, particularly during the peak-shipping season in the fall. A
substantial amount of intermodal freight originates at or near the major West
Coast ports, which have historically had the most severe equipment shortages.
If
we cannot secure sufficient transportation equipment at a reasonable price
from
third parties to meet our customers’ needs, our customers may seek to have their
transportation needs met by other providers. This could have an adverse effect
on our business, results of operations and financial
position.
Our
business could be adversely affected
by strikes or work stoppages by draymen, truckers, longshoremen and railroad
workers.
There
has been labor unrest, including
work stoppages, among draymen. We could lose business from any significant
work
stoppage or slowdown and, if labor unrest results in increased rates for
draymen, we may not be able to pass these cost increases on to our customers.
In
the Fall of 2002, all of the West Coast ports were shut down as a result of
a
dispute with the longshoremen. The ports remained closed for nearly two weeks,
until reopened as the result of a court order under the Taft-Hartley Act. Our
operations were adversely affected by the shutdown. In January 2003, a new
six-year contract was agreed to by the International Longshoremen and Warehouse
Union and the Pacific Maritime Association. In the past several years, there
have been strikes involving railroad workers. Future strikes by railroad workers
in the United States, Canada or anywhere else that our customers’ freight
travels by railroad could adversely affect our business and results of
operations. Any significant work stoppage, slowdown or other disruption
involving ports, railroads, truckers or draymen could adversely affect our
business and results of operations.
Our
results of operations are
susceptible to changes in general economic conditions and cyclical
fluctuations.
Economic
recession, customers’ business
cycles, changes in fuel prices and supply, interest rate fluctuations, increases
in fuel or energy taxes and other general economic factors affect the demand
for
transportation services and the operating costs of railroads, trucking companies
and drayage companies. We have little or no control over any of these factors
or
their effects on the transportation industry. Increases in the operating costs
of railroads, trucking companies or drayage companies can be expected to result
in higher freight rates. Our operating margins could be adversely affected
if we
were unable to pass through to our customers the full amount of higher freight
rates. Economic recession or a downturn in customers’ business cycles also may
have an adverse effect on our results of operations and growth by reducing
demand for our services. Therefore, our results of operations, like the entire
freight transportation industry, are cyclical and subject to significant
period-to-period fluctuations.
Relatively
small increases in our
transportation costs that we are unable to pass through to our customers are
likely to have a significant effect on our gross margin and operating
income.
Transportation
costs represented
86%, 86%
and 88% of our consolidated revenue in
2007, 2006 and 2005, respectively. Because transportation costs represent such
a
significant portion of our costs, even relatively small increases in these
transportation costs, if we are unable to pass them through to our customers,
are likely to have a significant effect on our gross margin and operating
income.
Our
business could be adversely affected
by heightened security measures, actual or threatened terrorist attacks, efforts
to combat terrorism, military action against a foreign state or other similar
event.
If
we fail to maintain and enhance our
information technology systems, we may be at a competitive disadvantage and
lose
customers.
Our
information technology systems are
critical to our operations and our ability to compete effectively as an IMC,
truck broker and logistics provider. We expect our customers to continue to
demand more sophisticated information technology applications from their
suppliers. If we do not continue to enhance our Network Management System and
the logistics software we use to meet the increasing demands of our customers,
we may be placed at a competitive disadvantage and could lose
customers.
Our
information technology systems are
subject to risks that we cannot control and the inability to use our information
technology systems could materially adversely affect our
business.
Our
information technology systems are
dependent upon global communications providers, web browsers, telephone systems
and other aspects of the Internet infrastructure that have experienced
significant system failures and electrical outages in the past. Our systems
are
susceptible to outages from fire, floods, power loss, telecommunications
failures, break-ins and similar events. Our servers are vulnerable to computer
viruses, break-ins and similar disruptions from unauthorized tampering with
our
computer systems. The occurrence of any of these events could disrupt or damage
our information technology systems and inhibit our internal operations, our
ability to provide services to our customers and the ability of our customers
and vendors to access our information technology systems. This could result
in a
loss of customers or a reduction in demand for our services.
The
transportation industry is subject
to government regulation, and regulatory changes could have a material adverse
effect on our operating results or financial condition.
Hub
Group, Inc. and various subsidiaries
are licensed by the Department of Transportation as motor carrier freight
brokers. The Department of Transportation prescribes qualifications for acting
in this capacity, including surety-bonding requirements. To date, compliance
with these regulations has not had a material adverse effect on our results
of
operations or financial condition. However, the transportation industry is
subject to legislative or regulatory changes that can affect the economics
of
the industry by requiring changes in operating practices or influencing the
demand for, and cost of providing, transportation services. Future
laws and regulations may be more stringent and require changes in operating
practices, influence the demand for transportation services or increase the
cost
of providing transportation services, any of which could adversely affect our
business.
Our
operations are subject to various
environmental laws and regulations, the violation of which could result in
substantial fines or penalties.
From
time to time, we arrange for the
movement of hazardous materials at the request of our customers. As a result,
we
are subject to various environmental laws and regulations relating to the
handling of hazardous materials. If we are involved in a spill or other accident
involving hazardous materials, or if we are found to be in violation of
applicable laws or regulations, we could be subject to substantial fines or
penalties and to civil and criminal liability, any of which could have an
adverse effect on our business and results of
operations.
We
derive a significant portion of our
revenue from our largest customers and the loss of several of these customers
could have a material adverse effect on our revenue and
business.
For
2007, our largest 20 customers
accounted for approximately 35% of our revenue. A reduction in or termination
of
our services by several of our largest customers could have a material adverse
effect on our revenue and business.
Insurance
and claims expenses could
significantly reduce our earnings.
Our
future insurance claims expenses
might exceed historical levels, which could reduce our earnings. If
the number or severity of claims increases, our operating results could be
adversely affected. We maintain insurance with licensed insurance
companies. Insurance carriers have recently raised
premiums. As a result, our insurance and claims expenses could
increase when our current coverage expires. If these expenses increase, and
we
are unable to offset the increase with higher freight rates, our earnings could
be materially and adversely affected.
Our
success depends upon our ability to
recruit and retain key personnel.
Our
success depends upon attracting and
retaining the services of our management team as well as our ability to attract
and retain a sufficient number of other qualified personnel to run our business.
There is substantial competition for qualified personnel in the transportation
services industry. As all key personnel devote their full time to our business,
the loss of any member of our management team or other key person could have
an
adverse effect on us. We do not have written employment agreements with any
of
our executive officers and do not maintain key man insurance on any of our
executive officers.
Our
growth
could be adversely affected if we
are not ableto identify,
successfully acquire and integrate future acquisition
prospects.
We
believe that future acquisitions
that we make could significantly impact financial results. Financial
results most likely to be impacted include, but are not limited to, revenue,
gross margin, salaries and benefits, selling general and administrative
expenses, depreciation and amortization, interest expense, net income and our
debt level.
Item
1B.
UNRESOLVED STAFF COMMENTS
None.
Item
2.
PROPERTIES
We
directly, or indirectly through our subsidiaries, operate 41 offices
throughout the United States and in Canada, including our headquarters in
Downers Grove, Illinois and our Company-owned drayage operations headquartered
in Memphis, Tennessee. All of our office space is
leased. Most office leases have initial terms of more than one year,
and many include options to renew. While some of our leases expire in
the near term, we do not believe that we will have difficulty in renewing them
or in finding alternative office space. We believe that our offices are adequate
for the purposes for which they are currently used.
Item
3.
LEGAL PROCEEDINGS
We
are a
party to litigation incident to our business, including claims for personal
injury and/or property damage, freight lost or damaged in transit, improperly
shipped or improperly billed. Some of the lawsuits to which we are
party are covered by insurance and are being defended by our insurance
carriers. Some of the lawsuits are not covered by insurance and we
defend those ourselves. We do not believe that the outcome of this
litigation will have a materially adverse effect on our financial position
or
results of operations. See Item 1 Business - Risk Management and
Insurance.
Item
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There
were no matters submitted to a vote of our security holders during the fourth
quarter of 2007.
Executive
Officers of the Registrant
In
reliance on General Instruction G to Form 10-K, information on executive
officers of the Registrant is included in this Part I. The table sets
forth certain information as of February 1, 2008 with respect to each person
who
is an executive officer of the Company.
Name
|
Age
|
Position
|
|
|
|
Phillip
C. Yeager
|
80
|
Chairman
of the Board of Directors
|
David
P. Yeager
|
54
|
Vice
Chairman of the Board of Directors and Chief Executive
Officer
|
Mark
A. Yeager
|
43
|
President,
Chief Operating Officer and Director
|
Christopher
R. Kravas
|
42
|
Chief
Intermodal Officer
|
David
L. Marsh
|
40
|
Chief
Marketing Officer
|
Terri
A. Pizzuto
|
49
|
Executive
Vice President, Chief Financial Officer and Treasurer
|
Stephen
P. Cosgrove
|
48
|
Executive
Vice President-Customer Service
|
James
B. Gaw
|
57
|
Executive
Vice President-Sales
|
Dwight
C. Nixon
|
45
|
Executive
Vice President-Highway
|
Donald
G. Maltby
|
53
|
Executive
Vice President-Logistics
|
Dennis
R. Polsen
|
54
|
Executive
Vice President-Information Services
|
David
C. Zeilstra
|
38
|
Vice
President, Secretary and General Counsel
|
|
|
|
Phillip
C. Yeager, our founder, has been Chairman of the Board since October 1985.
From
April 1971 to October 1985, Mr. Yeager served as President of Hub City
Terminals, Inc. (“Hub Chicago”). Mr. Yeager became involved in intermodal
transportation in 1959, five years after the introduction of intermodal
transportation in the United States, as an employee of the Pennsylvania and
Pennsylvania Central Railroads. He spent 19 years with the Pennsylvania and
Pennsylvania Central Railroads, 12 of which involved intermodal transportation.
In 1991, Mr. Yeager was named Man of the Year by the Intermodal Transportation
Association. In 1995, he received the Salzburg Practitioners Award from Syracuse
University in recognition of his lifetime achievements in the transportation
industry. In October 1996, Mr. Yeager was inducted into the Chicago Area
Entrepreneurship Hall of Fame sponsored by the University of Illinois at
Chicago. In March 1997, he received the Presidential Medal from
Dowling College for his achievements in transportation
services. In September 1998, he received the Silver Kingpin
award from the Intermodal Association of North America and in February 1999,
he
was named Transportation Person of the Year by the New York Traffic
Club. In June 2006, Mr. Yeager was awarded an honorary Doctor of
Public Service degree from the University of Denver in recognition of his
achievements in the intermodal transportation industry. In December 2006, the
Containerization and Intermodal Institute presented Mr. Yeager with their 2006
Connie Award in recognition of his contributions to their
industry. Mr. Yeager graduated from the University of Cincinnati in
1951 with a Bachelor of Arts degree in Economics. Mr. Yeager is the
father of David P. Yeager and Mark A. Yeager.
David
P.
Yeager has served as our Vice Chairman of the Board since January 1992 and
as
Chief Executive Officer since March 1995. From October 1985 through December
1991, Mr. Yeager was President of Hub Chicago. From 1983 to October 1985, he
served as Vice President, Marketing of Hub Chicago. Mr. Yeager founded the
St.
Louis Hub in 1980 and served as its President from 1980 to 1983. Mr. Yeager
founded the Pittsburgh Hub in 1975 and served as its President from 1975 to
1977. Mr. Yeager received a Masters in Business Administration degree from
the
University of Chicago in 1987 and a Bachelor of Arts degree from the University
of Dayton in 1975. Mr. Yeager is the son of Phillip C. Yeager and the brother
of
Mark A. Yeager.
Mark
A.
Yeager became the President of the Company in January 2005 and has been our
Chief Operating Officer and a director since May 2004. From July 1999
to December 2004, Mr. Yeager was President-Field Operations. From
November 1997 through June 1999 Mr. Yeager was Division President, Secretary
and
General Counsel. From March 1995 to November 1997, Mr. Yeager was
Vice President, Secretary and General Counsel. From May 1992 to March
1995, Mr. Yeager served as our Vice President-Quality. Prior to joining us
in
1992, Mr. Yeager was an associate at the law firm of Grippo & Elden from
January 1991 through May 1992 and an associate at the law firm of Sidley &
Austin from May 1989 through January 1991. Mr. Yeager received a Juris Doctor
degree from Georgetown University in 1989 and a Bachelor of Arts degree from
Indiana University in 1986. Mr. Yeager is the son of Phillip C. Yeager and
the
brother of David P. Yeager.
Christopher
R. Kravas has been our Chief Intermodal Officer since October
2007. Prior to this promotion, Mr. Kravas was Executive Vice
President-Strategy and Yield Management from December 2003 through September
2007. From February 2002 through November 2003, Mr. Kravas served as
President of Hub Highway Services. From February 2001 through
December 2001, Mr. Kravas was Vice President-Enron Freight
Markets. Mr. Kravas joined Enron after it acquired Webmodal, an
intermodal business he founded. Mr. Kravas was Chief
Executive
Officer of Webmodal from July 1999 through February 2001. From 1989
through June 1999 Mr. Kravas worked for the Burlington Northern Santa Fe Railway
in various positions in the intermodal business unit and finance
department. Mr. Kravas received a Bachelor of Arts degree in 1987
from Indiana University and a Masters in Business Administration in 1994 from
the University of Chicago.
David
L.
Marsh has been our Chief Marketing Officer since October 2007. Prior
to this promotion, Mr. Marsh was Executive Vice President-Highway from February
2004 through September 2007. Mr. Marsh previously served as President
of Hub Ohio from January 2000 through January 2004. Mr. Marsh joined
us in March 1991 and became General Manager with Hub Indianapolis in 1993,
a
position he held through December 1999. Prior to joining Hub Group,
Mr. Marsh worked for Carolina Freight Corporation, an LTL carrier, starting
in
January 1990. Mr. Marsh received a Bachelor of Science degree in
Marketing and Physical Distribution from Indiana University-Indianapolis in
December 1989. Mr. Marsh has been a member of the American Society of
Transportation and Logistics, the Indianapolis Traffic Club, the Council for
Logistics Management and served as an advisor to the Indiana
University-Indianapolis internship program for transportation and
logistics. Mr. Marsh was honored as the Indiana Transportation Person
of the Year in 1999.
Terri
A.
Pizzuto has been our Executive Vice President, Chief Financial Officer and
Treasurer since March 2007. Prior to this promotion, Ms. Pizzuto was
Vice President of Finance from July 2002 through February 2007. Prior
to joining us, Ms. Pizzuto was a partner in the Assurance and Business Advisory
Group at Arthur Andersen LLP. Ms. Pizzuto worked for Arthur Andersen
LLP for 22 years holding various positions and serving numerous transportation
companies. Ms. Pizzuto received a Bachelor of Science in Accounting
from the University of Illinois in 1981. Ms. Pizzuto is a CPA and a
member of the American Institute of Certified Public Accountants.
Stephen
P. Cosgrove has been our Executive Vice President-Customer Service since October
2007. Prior to this, Mr. Cosgrove served as Executive Vice
President-Intermodal and Administration from January 2005 through September
2007. Prior to this, Mr. Cosgrove was Vice President-Intermodal and
Administration for the Central Region from February 2004 through December
2004. Mr. Cosgrove served as Vice President of Hub Chicago from
December 1996 through January 2004 and from September 1995 to November 1996
was
General Manager of sales and marketing for Hub Chicago. Mr. Cosgrove
worked for APL Stacktrain Services from 1986 through 1995 prior to coming to
Hub
Chicago.
James
B.
Gaw has been our Executive Vice President-Sales since February
2004. From December 1996 through January 2004, Mr. Gaw was President
of Hub North Central, located in Milwaukee. From 1990 through late
1996, he was Vice President and General Manager of Hub Chicago. Mr.
Gaw joined Hub Chicago as Sales Manager in 1988. Mr. Gaw’s entire
career has been spent in the transportation industry, including 13 years of
progressive leadership positions at Itofca, an intermodal marketing company,
and
Flex Trans. Mr. Gaw received a Bachelor of Science degree from
Elmhurst College in 1973.
Dwight
C.
Nixon has been our Executive Vice President-Highway since October
2007. Mr. Nixon previously served as Regional Vice President of
Highway’s Western Region from April 2004 through September
2007. Prior to joining us, Mr. Nixon was a Senior Corporate Account
Executive for Roadway Express, Inc. and spent 19 years in various operational,
sales and sales management positions. Mr. Nixon was also a California
Gubernatorial appointee and member of the California Workforce Investment Board
from November 2005 through December 2007. Mr. Nixon received a
Bachelor of Science degree in Finance from the University of Arizona in
1984.
Donald
G.
Maltby has been our Executive Vice President-Logistics since February
2004. Mr. Maltby previously served as President of Hub Online, our
e-commerce division, from February 2000 through January 2004. Mr.
Maltby also served as President of Hub Cleveland from July 1990 through January
2000 and from April 2002 to January 2004. Prior to joining Hub Group,
Mr. Maltby served as President of Lyons Transportation, a wholly owned
subsidiary of Sherwin Williams Company, from 1988 to 1990. In his
career at Sherwin Williams, which began in 1981 and continued until he joined
us
in 1990, Mr. Maltby held a variety of management positions including
Vice-President of Marketing and Sales for their Transportation Division. Mr.
Maltby has been in the transportation and logistics industry since 1976, holding
various executive and management positions. Mr. Maltby received a
Masters in Business Administration from Baldwin Wallace College in 1982 and
a
Bachelor of Science degree from the State University of New York in
1976.
Dennis
R.
Polsen has been our Executive Vice President-Information Services since February
2004. From September 2001 to January 2004, Mr. Polsen was Vice
President-Chief Information Officer and from March 2000 through August 2001,
Mr.
Polsen was our Vice-President of Application Development. Prior to
joining us, Mr. Polsen was Director of Applications for Humana, Inc. from
September 1997 through February 2000 and spent 14 years prior to that
developing, implementing, and directing transportation logistics applications
at
Schneider National, Inc. Mr. Polsen received a Masters in Business
Administration in May of 1983 from the University of Wisconsin Graduate School
of Business and a Bachelor of Business Administration in May of 1976 from the
University of Wisconsin-Milwaukee. Mr. Polsen is a past member of the
American Trucking Association.
David
C.
Zeilstra has been our Vice President, Secretary and General Counsel since July
1999. From December 1996 through June 1999, Mr. Zeilstra was our
Assistant General Counsel. Prior to joining us, Mr. Zeilstra was an
associate with the law firm of Mayer, Brown & Platt from September 1994
through November 1996. Mr. Zeilstra received a Juris Doctor degree
from Duke University in 1994 and a Bachelor of Arts degree from Wheaton College
in 1990.
Directors
of the Registrant
In
addition to Phillip C. Yeager,
David P. Yeager and Mark A. Yeager, the following three individuals are also
on
our Board of Directors: Gary D. Eppen – currently retired and formerly the Ralph
and Dorothy Keller Distinguished Service Professor of Operations Management
and
Deputy Dean for part-time Masters in Business Administration Programs at the
Graduate School of Business at the University of Chicago; Charles R. Reaves
–
Chief Executive Officer of Reaves Enterprises, Inc., a real estate development
company and Martin P. Slark – Vice Chairman and Chief Executive Officer of
Molex, Incorporated, a manufacturer of electronic, electrical and fiber optic
interconnection products and systems.
PART
II
Item
5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND
ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
Class A Common Stock (“Class A
Common Stock”) trades on the NASDAQ Global Select Market tier of the NASDAQ
Stock Market under the symbol “HUBG.” Set forth below are the high
and low closing prices for shares of the Class A Common Stock for each full
quarterly period in 2006 and 2007.
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$ |
33.52 |
|
|
$ |
28.56 |
|
|
$ |
22.92 |
|
|
$ |
17.42 |
|
Second
Quarter
|
|
$ |
37.83 |
|
|
$ |
28.98 |
|
|
$ |
25.80 |
|
|
$ |
20.75 |
|
Third
Quarter
|
|
$ |
38.96 |
|
|
$ |
29.94 |
|
|
$ |
24.68 |
|
|
$ |
20.98 |
|
Fourth
Quarter
|
|
$ |
33.39 |
|
|
$ |
23.69 |
|
|
$ |
29.63 |
|
|
$ |
22.99 |
|
On
February 19, 2008, there were
approximately 263 stockholders of record of the Class A Common Stock and,
in addition, there were an estimated 12,517 beneficial owners of the Class
A Common Stock whose shares were held by brokers and other fiduciary
institutions. On February 19, 2008, there were 11 holders of record
of our Class B Common Stock (the “Class B Common Stock” together with the Class
A Common Stock, the “Common Stock”).
We
were incorporated in 1995 and have
never paid cash dividends on either the Class A Common Stock or the Class B
Common Stock. The declaration and payment of dividends are subject to
the discretion of the Board of Directors. Any determination as to the
payment of dividends will depend upon our results of operations, capital
requirements and financial condition of the Company, and such other factors
as
the Board of Directors may deem relevant. Accordingly, there can be
no assurance that the Board of Directors will declare or pay cash dividends
on
the shares of Common Stock in the future. Our certificate of
incorporation requires that any cash dividends must be paid equally on each
outstanding share of Class A Common Stock and Class B Common
Stock. Our credit facility prohibits us from paying dividends on the
Common Stock if there has been, or immediately following the payment of a
dividend there would be, a default or an event of default under the credit
facility. We are currently in compliance with the covenants contained
in the credit facility.
The
Board of Directors approved a
two-for-one stock split in the form of a stock dividend which was paid on May
6,
2006. All shares have been retroactively restated to give effect to
the two-for-one stock split, which was affected in the form of a 100% stock
dividend. Each of our Class A stockholders and Class B stockholders
received one Class A share on each share of Class A Common Stock and each share
of Class B Common Stock held by them on the record date in connection with
the
stock split. In accordance with the terms of our Certificate of
Incorporation, the number of votes held by each share of Class B Common Stock
was adjusted in connection with this stock dividend such that each share of
Class B Common Stock now entitles its holder to approximately 80
votes. Each share of Class A Common Stock entitles its holder to one
vote.
Note
12
of the Company’s Notes to Consolidated Financial Statements is incorporated
herein by reference.
Performance
Graph
The
following line graph compares the Company’s cumulative total stockholder return
on its Class A Common Stock since December 31, 2002with
the cumulative total return of the
Nasdaq Stock Market Index and the Nasdaq Trucking and Transportation Index.
These comparisons assume the investment of $100 on December 31, 2002 in
each index and in the Company’s Class
A Common Stock and the reinvestment of dividends.
Item
6.
SELECTED FINANCIAL
DATA
|
Selected Financial Data
|
|
(in
thousands except per share data) |
|
|
Years
Ended December 31, |
|
|
|
2007 |
|
|
2006
(2) |
|
|
2005 |
|
|
2004 |
|
|
2003
|
|
Statement
of
Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,658,168 |
|
|
$ |
1,609,529 |
|
|
$ |
1,481,878 |
|
|
$ |
1,380,722 |
|
|
$ |
1,305,817 |
|
Gross
margin |
|
|
232,324 |
|
|
|
218,418 |
|
|
|
174,742 |
|
|
|
167,062 |
|
|
|
155,569 |
|
Operating
income |
|
|
90,740 |
|
|
|
77,236 |
|
|
|
47,904 |
|
|
|
38,104 |
|
|
|
20,611 |
|
Income
from continuing operations
before taxes |
|
|
93,228 |
|
|
|
79,508 |
|
|
|
48,871 |
|
|
|
27,551 |
|
|
|
13,842 |
|
Income
from continuing operations
after taxes |
|
|
59,799 |
|
|
|
47,705 |
|
|
|
29,176 |
|
|
|
15,870 |
|
|
|
6,906 |
|
Income
from discontinued
operations, net of tax (1) |
|
|
- |
|
|
|
981 |
|
|
|
3,770 |
|
|
|
1,409 |
|
|
|
1,524 |
|
Net
income |
|
$ |
59,799 |
|
|
$ |
48,686 |
|
|
$ |
32,946 |
|
|
$ |
17,279 |
|
|
$ |
8,430 |
|
Basic
earnings per common
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations |
|
$ |
1.55 |
|
|
$ |
1.19 |
|
|
$ |
0.73 |
|
|
$ |
0.45 |
|
|
$ |
0.22 |
|
Income
from
discontinued operations |
|
|
- |
|
|
$ |
0.03 |
|
|
$ |
0.10 |
|
|
$ |
0.04 |
|
|
$ |
0.05 |
|
Diluted
earnings per common
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations |
|
$ |
1.53 |
|
|
$ |
1.17 |
|
|
$ |
0.71 |
|
|
$ |
0.42 |
|
|
$ |
0.22 |
|
Income
from discontinued operations |
|
|
- |
|
|
$ |
0.02 |
|
|
$ |
0.09 |
|
|
$ |
0.04 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Balance
Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
491,967 |
|
|
$ |
484,548 |
|
|
$ |
444,418 |
|
|
$ |
410,845 |
|
|
$ |
388,527 |
|
Long-term
debt, excluding current
portion
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
67,017 |
|
Stockholders'
equity
|
|
|
250,899 |
|
|
|
258,844 |
|
|
|
242,075 |
|
|
|
226,936 |
|
|
|
143,035 |
|
(1)
|
HGDS
disposed of May 1, 2006
|
(2)
|
Comtrak
was acquired February 28, 2006
|
Item
7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND
RESULTS OF OPERATIONS
FORWARD
LOOKING STATEMENTS
The
information contained in this annual report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. Words such as “expects,” “hopes,” “believes,” “intends,”
“estimates,” “anticipates,” and variations of these words and similar
expressions are intended to identify these forward-looking
statements. Forward-looking statements are inherently uncertain and
subject to risks. Such statements should be viewed with
caution. Actual results or experience could differ materially from
the forward-looking statements as a result of many factors. We assume
no liability to update any such forward-looking statements contained in this
annual report. Factors that could cause our actual results to differ
materially, in addition to those set forth under Items 1A “Risk Factors,”
include:
·
|
the
degree and rate of market growth in the domestic intermodal, truck
brokerage and logistics markets served by
us;
|
·
|
deterioration
in our relationships with existing railroads or adverse changes to
the
railroads’ operating rules;
|
·
|
changes
in rail service conditions or adverse weather
conditions;
|
·
|
further
consolidation of railroads;
|
·
|
the
impact of competitive pressures in the marketplace, including entry
of new
competitors, direct marketing efforts by the railroads or marketing
efforts of asset-based carriers;
|
·
|
changes
in rail, drayage and trucking company
capacity;
|
·
|
railroads
moving away from ownership of intermodal
assets;
|
·
|
equipment
shortages or equipment surplus;
|
·
|
changes
in the cost of services from rail, drayage, truck or other
vendors;
|
·
|
increases
in costs for independent contractors due to regulatory, judicial
and legal
changes;
|
·
|
labor
unrest in the rail, drayage or trucking company
communities;
|
·
|
general
economic and business conditions;
|
·
|
fuel
shortages or fluctuations in fuel
prices;
|
·
|
increases
in interest rates;
|
·
|
changes
in homeland security or terrorist
activity;
|
·
|
difficulties
in maintaining or enhancing our information technology
systems;
|
·
|
changes
to or new governmental regulation;
|
·
|
loss
of several of our largest
customers;
|
·
|
inability
to recruit and retain key
personnel;
|
·
|
inability
to recruit and maintain drivers and owner
operators;
|
·
|
changes
in insurance costs and claims expense;
and
|
·
|
inability
to close and successfully integrate any future business
combinations.
|
CAPITAL
STRUCTURE
We
have
authorized common stock comprised of Class A Common Stock and Class B Common
Stock. The rights of holders of Class A Common Stock and Class B
Common Stock are identical, except each share of Class B Common Stock entitles
its holder to approximately 80 votes, while each share of Class A Common Stock
entitles its holder to one vote. We have authorized 2,000,000 shares
of preferred stock.
EXECUTIVE
SUMMARY
Hub
Group, Inc. (“we”, “us” or “our”) is the largest intermodal marketing
company (“IMC”) in the United States and a full service transportation provider
offering intermodal, truck brokerage and logistics services. We
operate through a nationwide network of operating centers.
As
an
IMC, we arrange for the movement of our customers’ freight in containers and
trailers over long distances. We contract with railroads to provide
transportation for the long-haul portion of the shipment and with local trucking
companies, known as “drayage companies,” for local pickup and
delivery. As part of the intermodal services, we negotiate rail and
drayage rates, electronically track shipments in transit, consolidate billing
and handle claims for freight loss or damage on behalf of our
customers.
Through
our subsidiary Comtrak Logistics, Inc. (“Comtrak”), we acquired substantially
all the assets of Comtrak Inc. at the close of business on February 28,
2006. Comtrak is a transportation company whose services include
primarily rail and international drayage for the intermodal
sector. The results of Comtrak are included in our results of
operations from March 1, 2006, its date of acquisition.
Our
drayage services are provided by our subsidiaries, Comtrak and Quality Services,
LLC (“QS”) who assist us in providing reliable, cost effective intermodal
services to our customers. Our subsidiaries have terminals in
Atlanta, Birmingham, Charleston, Charlotte, Chattanooga, Chicago, Cleveland,
Columbus, Dallas, Huntsville, Jacksonville, Kansas City, Los Angeles,
Memphis, Nashville, Perry, Savannah, St. Louis, Stockton, and
Tampa. At December 31, 2007, QS and Comtrak owned 329 tractors,
leased 23 tractors, leased or owned 706 trailers and employed 331 drivers and
contracted with 845 owner-operators.
We
also
arrange for the transportation of freight by truck, providing customers with
another option for their transportation needs. We match the
customers’ needs with carriers’ capacity to provide the most effective service
and price combinations. As part of our truck brokerage services, we
negotiate rates, track shipments in transit and handle claims for freight loss
or damage on behalf of our customers.
Our
logistics service consists of complex transportation management services,
including load consolidation, mode optimization and carrier
management. These service offerings are designed to take advantage of
the increasing trend for shippers to outsource all or a greater portion of
their
transportation needs.
We
have
full time marketing representatives throughout North America who service local,
regional and national accounts. We believe that fostering long-term
customer relationships is critical to our success and allows us to better
understand our customers’ needs and specifically tailor our transportation
services to them.
One
of
our primary goals is to grow our net income. We achieved this growth
through an increase in revenue and margin from our existing transportation
customers, winning new customers and the acquisition of Comtrak. Our
yield management group works with sales and operations to enhance customer
margins. Our top 50 customers’ revenue represents approximately 51%
of our revenue. During 2007, 2006 and 2005, we severed relationships
with certain customers due to profitability issues and credit issues which
impeded our intermodal revenue growth. We have mitigated our risks in
the automotive sector by significantly reducing or eliminating our relationship
with two automotive parts suppliers in 2006. While we continue to do
some limited business for this sector, we are carefully managing our credit
exposure.
We
use
various performance indicators to manage our business. We closely
monitor margin and gains and losses for our top 50 customers and loads with
negative margins. We also evaluate on-time performance, cost per load
and daily sales outstanding by customer account. Vendor cost changes
and vendor service issues are also monitored closely.
Substantially
all of the assets of Hub Group Distribution Services, LLC (“HGDS” or “Hub
Distribution”) were sold to the President of the former subsidiary on May 1,
2006. Accordingly, the results of operations of HGDS for all years
presented have been reported as discontinued operations.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2007, Compared to Year Ended December 31, 2006
The
following table summarizes our revenue by service line (in
thousands):
|
|
Twelve
Months Ended
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
$ |
1,206,364 |
|
|
$ |
1,172,566 |
|
|
|
2.9 |
% |
Brokerage
|
|
|
318,834 |
|
|
|
306,332 |
|
|
|
4.1 |
% |
Logistics
|
|
|
132,970 |
|
|
|
130,631 |
|
|
|
1.8 |
% |
Total
revenue from continuing operations
|
|
$ |
1,658,168 |
|
|
$ |
1,609,529 |
|
|
|
3.0 |
% |
The
following table includes certain items in the consolidated statements of income
as a percentage of revenue:
|
|
Twelve
Months Ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Transportation
costs
|
|
|
86.0 |
|
|
|
86.4 |
|
Gross
margin
|
|
|
14.0 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
5.8 |
|
|
|
5.9 |
|
General
and administration
|
|
|
2.5 |
|
|
|
2.5 |
|
Depreciation
and amortization
|
|
|
0.2 |
|
|
|
0.4 |
|
Total
costs and expenses
|
|
|
8.5 |
|
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
5.5 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
0.1 |
|
|
|
0.1 |
|
Total
other income (expense)
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before
provision
for income taxes
|
|
|
5.6 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
3.6 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
Revenue
Revenue
increased 3.0% to $1,658.2
million in 2007 from $1,609.5 million in 2006. Intermodal revenue
increased 2.9% to $1,206.4 million from $1,172.6 million due primarily to a
1.0%
increase related to Comtrak (we owned Comtrak for 10 months in 2006 and for
12 months in 2007) and a 2.5% increase in volume offset by a 0.6% combined
decrease related to pricing, mix and fuel surcharges. Truck brokerage
revenue increased 4.1% to $318.8 million from $306.3 million due primarily
to
price increases, mix and fuel surcharges. Logistics revenue increased
1.8% to $133.0 million from $130.6 million due to increases in business from
both new and existing customers in 2007. Hub Distribution’s revenue
has been reclassified to discontinued operations due to its sale.
Gross
Margin
Gross
margin increased 6.4% to $232.3
million in 2007 from $218.4 million in 2006. Gross margin percentage
increased to 14.0% in 2007 from 13.6% in 2006 due to various margin enhancement
efforts, growth in truck brokerage and our drayage operations, including the
addition of Comtrak.
Salaries
and Benefits
Salaries
and benefits increased to
$95.7 million in 2007 from $95.2 million in 2006. The increase is
related to Comtrak and an increase in salaries and employee benefits partially
offset by a decrease in incentive compensation. As a percentage of
revenue, salaries and benefits decreased to 5.8% in 2007 from 5.9% in
2006. Headcount as of December 31, 2007 and 2006 was 1,081 and 1,089,
respectively, which excludes drivers, as driver costs are included in
transportation costs.
General
and Administrative
General
and administrative expenses
increased to $41.4 million from $39.9 million in 2006 partially due to the
acquisition of Comtrak. The increase related to Comtrak was partially
offset by a decrease in rental expense, telephone expense, bad debt expense
and
equipment lease expense. As a percentage of revenue, general and
administrative expenses remained consistent at 2.5% in 2007 and
2006.
Depreciation
and Amortization
Depreciation
and amortization decreased
26.4% to $4.5 million in 2007 from $6.1 million in 2006. This expense
as a percentage of revenue decreased to 0.2% from 0.4%. The decrease
in depreciation and amortization is due primarily to lower software depreciation
due to certain assets being fully depreciated.
Other
Income (Expense)
Interest
expense remained consistent at
$0.1 million in 2007 and 2006. Interest income increased to $2.5
million in 2007 from $2.3 million in 2006. The increase in interest
income is due to a higher average investment balance and a higher average
interest rate in 2007.
Provision
for Income Taxes
The
provision for income taxes
increased to $33.4 million in 2007 compared to $31.8 million in
2006. We provided for income taxes using an effective rate of 35.9%
in 2007 compared to 40.0% in 2006. The decrease in the effective rate
in 2007 resulted primarily from the favorable impacts of the resolution of
our
dispute with the Internal Revenue Service and an Illinois law
change.
Income
from Continuing Operations
Income
from continuing operations
increased to $59.8 million in 2007 from $47.7 million in 2006 due primarily
to
higher gross margin, lower depreciation and amortization expense and higher
interest income.
Income
from Discontinued Operations
Income
from discontinued operations of
$1.0 million includes income from the operations of HGDS through May 1,
2006.
Earnings
Per Common Share
Basic
earnings per share from
continuing operations was $1.55 in 2007 and $1.19 in 2006. Basic
earnings per share from discontinued operations was $0.03 in
2006. Basic earnings per share increased to $1.55 in 2007 from $1.22
in 2006. Basic earnings per share increased due to the increase in
income from continuing operations and the decrease in the basic weighted average
number of shares outstanding because of our purchase of treasury
shares.
Diluted
earnings per share from
continuing operations increased to $1.53 in 2007 from $1.17 in
2006. Diluted earnings per share from discontinued operations was
$0.02 in 2006. Diluted earnings per share increased to $1.53 in
2007 from $1.19 in 2006. Diluted earnings per share increased due to
the increase in income from continuing operations and the decrease in the
diluted weighted average number of shares outstanding because of our purchase
of
treasury shares.
All
shares, per-share amounts and
options have been retroactively restated to give effect to the two-for-one
stock
split in June of 2006.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2006, Compared to Year Ended December 31, 2005
The
following table summarizes our revenue by service line (in
thousands):
|
|
Twelve
Months Ended
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
$ |
1,172,566 |
|
|
$ |
1,079,798 |
|
|
|
8.6 |
% |
Brokerage
|
|
|
306,332 |
|
|
|
266,545 |
|
|
|
14.9 |
% |
Logistics
|
|
|
130,631 |
|
|
|
135,535 |
|
|
|
(3.6) |
% |
Total
revenue from continuing operations
|
|
$ |
1,609,529 |
|
|
$ |
1,481,878 |
|
|
|
8.6 |
% |
The
following table includes certain items in the consolidated statements of income
as a percentage of revenue:
|
|
Twelve
Months Ended
|
|
|
|
December
31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Transportation
costs
|
|
|
86.4 |
|
|
|
88.2 |
|
Gross
margin
|
|
|
13.6 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
5.9 |
|
|
|
5.6 |
|
General
and administration
|
|
|
2.5 |
|
|
|
2.3 |
|
Depreciation
and amortization
|
|
|
0.4 |
|
|
|
0.7 |
|
Total
costs and expenses
|
|
|
8.8 |
|
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4.8 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
0.1 |
|
|
|
0.1 |
|
Total
other income (expense)
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before
provision
for income taxes
|
|
|
4.9 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
1.9 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
3.0 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
Revenue
Revenue
increased 8.6% to $1,609.5
million in 2006 from $1,481.9 million in 2005. Intermodal revenue
increased 8.6% to $1,172.6 million from $1,079.8 million due primarily to a
6.2%
increase related to Comtrak, a 5.2% combined increase related to pricing, mix
and fuel surcharges, offset by a 2.8% decline in volume. Truck
brokerage revenue increased 14.9% to $306.3 million from $266.5 million due
primarily to a 9.7% increase in volume in addition to price increases, mix
and
fuel surcharges. Logistics revenue decreased 3.6% to $130.6 million
from $135.5 million due primarily to lost customers offset by increases in
business from both new and existing customers in 2006. Hub
Distribution’s revenue has been reclassified to discontinued operations due to
its sale.
Gross
Margin
Gross
margin increased 25.0% to $218.4
million in 2006 from $174.7 million in 2005. Gross margin percentage
increased from 11.8% in 2005 to 13.6% in 2006 due to various margin enhancement
efforts, growth in truck brokerage and our drayage operations, including the
addition of Comtrak.
Salaries
and Benefits
Salaries
and benefits increased to
$95.2 million in 2006 from $83.4 million in 2005. The increase is
related to Comtrak and an increase in salaries, employee benefits and incentive
based compensation. As a percentage of revenue, salaries and benefits
increased to 5.9% in 2006 from 5.6% in 2005. Headcount as of December
31, 2006 and 2005 was 1,089 and 944, respectively, which excludes drivers,
as
driver costs are included in transportation costs. The increase in headcount
can
be attributed to the addition of the 167 employees resulting from the
acquisition of Comtrak.
General
and Administrative
General
and administrative expenses
increased to $39.9 million in 2006 from $34.5 million in 2005 partially due
to
the acquisition of Comtrak. The increase related to Comtrak was
partially offset by a decrease in telephone expense, bad debt expense, office
expense and equipment lease expense. As a percentage of revenue,
general and administrative expenses increased to 2.5% in 2006 from 2.3% in
2005.
Depreciation
and Amortization
Depreciation
and amortization decreased
31.5% to $6.1 million from $8.9 million in 2005. This expense as a
percentage of revenue decreased to 0.4% from 0.7%. The decrease in
depreciation and amortization is due primarily to lower software depreciation
due to certain assets being fully depreciated.
Other
Income (Expense)
Interest
expense remained consistent at
approximately $0.1 million in 2006 and 2005. Interest income
increased to $2.3 million in 2006 from $1.0 million in 2005. The
increase in interest income is due to a higher average investment balance and
a
higher average interest rate in 2006.
Provision
for Income Taxes
The
provision for income taxes
increased to $31.8 million in 2006 compared to $19.7 million in
2005. We provided for income taxes using an effective rate of 40.0%
in 2006 compared to 40.3% in 2005. The decrease in the effective rate
in 2006 resulted primarily from adjustments to the valuation
allowance.
Income
from Continuing Operations
Income
from continuing operations
increased to $47.7 million in 2006 compared to $29.2 million in 2005 due
primarily to higher gross margin, lower depreciation and amortization expense
and higher interest income partially offset by an increase in salaries and
general and administrative expenses.
Income
from Discontinued Operations
Income
from discontinued operations
includes income from the operations of HGDS. This income was $1.0
million in 2006 and $3.8 million in 2005. Certain assets of HGDS were
disposed of on May 1, 2006 at a pre-tax loss of $0.1 million.
Earnings
Per Common Share
Basic
earnings per share from
continuing operations was $1.19 in 2006 and $0.73 in 2005. Basic
earnings per share from discontinued operations was $0.03 in 2006 and $0.10
in
2005. Basic earnings per share was $1.22 in 2006 and $0.83 in
2005.
Diluted
earnings per share from
continuing operations increased to $1.17 in 2006 from $0.71 in
2005. Diluted earnings per share from discontinued operations was
$0.02 in 2006 and $0.09 in 2005. Diluted earnings per share
increased to $1.19 in 2006 from $0.80 in 2005.
All
shares, per-share amounts and
options have been retroactively restated to give effect to the two-for-one
stock
split in June of 2006 and May of 2005.
LIQUIDITY
AND CAPITAL RESOURCES
In
2007, we have funded our
operations, capital expenditures and stock buy backs through cash flows from
operations and cash on hand.
Cash
provided by operating activities
for the year ended December 31, 2007 was approximately $80.6 million, which
resulted primarily from net income from continuing operations of $59.8 million,
non-cash charges of $14.4 million and an increase in the change in operating
assets and liabilities of $6.4 million.
Net
cash used in investing activities
for the year ended December 31, 2007 was $14.5 million and related primarily
to
capital expenditures of $10.2 million and an earn-out payment relating to the
acquisition of Comtrak of $5.0 million offset by proceeds from the sale of
equipment of $0.7 million. We expect capital expenditures to be
between $10.0 million and $11.0 million in 2008.
The
net cash used in financing
activities for the year ended December 31, 2007 was $71.6 million. We
generated $0.8 million of cash from stock options exercised and used $76.3
million of cash to purchase treasury stock. We also reported $3.9
million of excess tax benefits from share-based compensation as a financing
cash
in-flow. These tax benefits were previously reported as operating
cash flows prior to the adoption of SFAS 123(R) in 2006.
We
invest our cash overnight in
commercial paper. These investments are included in cash and cash
equivalents on our balance sheet due to their short term maturity and are
reported at their carrying value which approximates fair value.
On
March 23, 2005, we entered into a
revolving credit agreement that provides for unsecured borrowings of up to
$40.0
million. The interest rate ranges from LIBOR plus 0.75% to 1.25% or
Prime plus 0.5%. The revolving line of credit expires on March 23,
2010. The financial covenants require a minimum net worth of $175.0
million and a cash flow leverage ratio of not more than 2.0 to
1.0. The commitment fees charged on the unused line of credit are
between 0.15% and 0.25%. On February 21, 2006, we amended the
revolving credit agreement to provide for unsecured borrowing up to $50.0
million. No other terms of the agreement were amended. Our
unused and available borrowings under our bank revolving line of credit at
December 31, 2007 and December 31, 2006 were $47.2 million and $48.2 million,
respectively. We were in compliance with our debt covenants at
December 31, 2007.
We
have standby letters of credit
that expire from 2008 to 2012. As of December 31, 2007, our letters
of credit were $2.8 million.
In
2007, we added 2,000 new 53’
containers to our fleet. We financed these containers with operating
leases. These and other leasing arrangements are included in Note 7
to the consolidated financial statements.
We
have a related party payable of
$5.0 million as of December 31, 2007 that will be paid during the first quarter
of 2008. This amount relates to the 2007 earn-out payment due to the
former owner of Comtrak.
We
have authorization to spend $75.0
million to purchase common stock through June of 2009.
CONTRACTUAL
OBLIGATIONS
Our
contractual cash obligations as
of December 31, 2007 are minimum rental commitments and the earn-out payment
to
the former owner of Comtrak. We have a ten year lease agreement for a
building and property (Comtrak’s Memphis facility) with a related party, the
President of Comtrak. Rent paid under this agreement totaled $0.7
million for the year ended December 31, 2007. The annual lease
payments escalate by less than 1% per year. Minimum annual
rental commitments, at December 31, 2007, under non-cancelable operating leases,
principally for real estate, containers and equipment and the earn-out related
to Comtrak are payable as follows (in thousands):
2008
|
|
$ |
24,514 |
|
2009
|
|
|
17,815 |
|
2010
|
|
|
15,461 |
|
2011
|
|
|
13,930 |
|
2012
|
|
|
12,297 |
|
2013
and thereafter
|
|
|
5,451 |
|
In
February 2008, we
entered into an equipment purchase contract with Singamas Management Services,
Ltd. and Singamas North America, Inc. We agreed to purchase 1,000
fifty-three foot dry freight steel domestic containers for approximately $10.0
million. We expect delivery of the 1,000 units during the summer of
2008. We plan to finance these containers with operating
leases. These commitments are not included in the table above since
the arrangements have not yet been finalized.
Deferred
Compensation
Under
our Nonqualified Deferred
Compensation Plan (the “Plan”), participants can elect to defer certain
compensation. Payments under the Plan are due as follows (in
thousands):
2008
|
|
$ |
979 |
|
2009
|
|
|
868 |
|
2010
|
|
|
1,620 |
|
2011
|
|
|
576 |
|
2012
|
|
|
582 |
|
2013
and thereafter
|
|
|
5,806 |
|
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial
statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions. In certain
circumstances, those estimates and assumptions can affect amounts reported
in
the accompanying consolidated financial statements. We have made our
best estimates and judgments of certain amounts included in the financial
statements, giving due consideration to materiality. We do not
believe there is a great likelihood that materially different amounts would
be
reported related to the accounting policies described below. However,
application of these accounting policies involves the exercise of judgment
and
use of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates. The following is a brief
discussion of the more significant accounting policies and
estimates.
Allowance
for Uncollectible Trade Accounts Receivable
In
the normal course of business, we
extend credit to customers after a review of each customer’s credit
history. An allowance for uncollectible trade accounts has been
established through an analysis of the accounts receivable aging, an assessment
of collectibility based on historical trends and an evaluation of the current
economic conditions. To be more specific, we reserve a portion of
every account balance that has aged over one year, a portion of certain
customers in bankruptcy and account balances specifically identified as
uncollectible. The allowance is reported on the balance sheet in net
accounts receivable. Actual collections of accounts receivable could
differ from management’s estimates due to changes in future economic, industry
or customer financial conditions. Recoveries of receivables
previously charged off are recorded when received.
Revenue
Recognition
Revenue
is recognized at the time 1)
persuasive evidence of an arrangement exists, 2) services have been rendered,
3)
the sales price is fixed and determinable and 4) collectibility is reasonably
assured. In accordance with EITF 91-9, revenue and related
transportation costs are recognized based on relative transit
time. Further, we report revenue on a gross basis in accordance with
the criteria in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net
as an Agent.” We are the primary obligor and are responsible for
providing the service desired by the customer. The customer views us
as responsible for fulfillment including the acceptability of the
service. Service requirements may include, for example, on-time
delivery, handling freight loss and damage claims, setting up appointments
for
pick up and delivery and tracing shipments in transit. We have
discretion in setting sales prices and as a result, our earnings
vary. In addition, we have the discretion to select our vendors from
multiple suppliers for the services ordered by our
customers. Finally, we have credit risk for our
receivables. These three factors, discretion in setting prices,
discretion in selecting vendors and credit risk, further support reporting
revenue on the gross basis.
Deferred
Income Taxes
Deferred
income taxes are recognized
for the future tax effects of temporary differences between financial and income
tax reporting using tax rates in effect for the years in which the differences
are expected to reverse. We believe that it is more likely than not
that our deferred tax assets will be realized with the exception of $0.2 million
related to state tax net operating losses for which a valuation allowance has
been established. In the event the probability of realizing the
remaining deferred tax assets do not meet the more likely than not threshold
in
the future, a valuation allowance would be established for the deferred tax
assets deemed unrecoverable.
Valuation
of Goodwill and Other Indefinite-Lived Intangibles
We
review goodwill and other
indefinite-lived intangibles for impairment on an annual basis or whenever
events or changes in circumstances indicate the carrying amount of goodwill
or
other indefinite-lived intangibles may not be recoverable. We utilize
a third-party independent valuation firm to assist in performing the necessary
valuations to be used in the impairment testing. These valuations are
based on market capitalization, discounted cash flow analysis or a combination
of both methodologies. The assumptions used in the valuations include
expectations regarding future operating performance, discount rates, control
premiums and other factors which are subjective in nature. Actual
cash flows from operations could differ from management’s estimates due to
changes in business conditions, operating performance and economic
conditions. Should estimates differ materially from actual results,
we may be required to record impairment charges in the future.
Equipment
We
operate tractors and utilize
containers in connection with our business. This equipment may be
purchased or acquired under capital or operating lease agreements. In
addition, we rent equipment from third parties and various railroads under
short
term rental arrangements. Equipment which is purchased is depreciated
on the straight line method over the estimated useful life. We had no
equipment under capital lease arrangements at December 31, 2007. Our
equipment leases have five to seven year terms and in some cases contain renewal
options.
Stock
Based Compensation
Effective
January 1, 2006 we adopted
the fair value recognition provisions of FASB Statement No. 123 (R) “Share Based
Payment” (SFAS No. 123 (R)), using the modified prospective transition
method. Prior to January 1, 2006, we accounted for our share-based
compensation plans under the recognition and measurement provisions of APB
Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
interpretations as permitted by Statement of Financial Accounting Standard
(SFAS) No. 123 “Accounting for Stock Based Compensation.” We have not
granted any stock options since 2003. Instead, we have issued
nonvested stock, commonly known as “restricted stock,” that vests over three to
five years. As of December 31, 2007, there was $6.0 million of
unrecognized compensation cost related to non-vested share based compensation
that is expected be recognized over a weighted average period of 1.37
years. In addition, during 2006, the Board of Directors granted and
issued performance units which entitle the recipients to receive restricted
stock contingent upon the achievement of an operating income earnings
target. The unrecognized compensation cost mentioned above does not
include any potential unrecognized compensation expense associated with the
performance units.
Accounting
for Income Taxes
Effective
January 1, 2007 we adopted
the Financial Accounting Standards Board (FASB) Interpretation No. 48 (“FIN
48”), “Accounting for Uncertainty in Income Taxes”, which is an interpretation
of SFAS No. 109, Accounting for Income Taxes. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold
a
tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. In addition, FIN 48 clearly
scopes out income taxes from Financial Accounting Standards Board Statement
No.
5, “Accounting for Contingencies”.
New
Pronouncements
In
September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. In February 2008, the
FASB deferred the effective date of SFAS No. 157 for one year for all
nonfinancial assets and nonfinancial liabilities, except for those items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). In addition, certain leasing
transactions accounted for under SFAS No. 13, “Accounting for Leases”, are now
excluded from the scope of SFAS No. 157. We adopted SFAS No. 157
effective January 1, 2008. There was no cumulative effect recorded
upon adoption as of January 1, 2008 and we do not expect the impact on our
financial statements in subsequent reporting periods to be
significant.
In
February 2007, the FASB issued
SFAS No. No. 159, “Fair Value Option for Financial Assets and Financial
Liabilities” (SFAS No. 159). SFAS 159 permits entities to voluntarily
choose to measure many financial instruments and certain other items at fair
value. SFAS No. 159 is effective beginning January 1, 2008,
but we have decided not to adopt this optional standard at this
time.
The
FASB
issued Statement of SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R))
in December 2007. SFAS No. 141(R) requires the acquiring entity in a
business combination to record all assets acquired and liabilities assumed
at
their respective acquisition-date fair values including contingent
consideration. In addition SFAS No. 141(R) changes the recognition of
assets acquired and liabilities assumed
arising
from preacquisition contingencies and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is
on or
after January 1, 2009. We plan to adopt SFAS No. 141(R) effective
January 1, 2009 and do not currently expect the impact on our financial
statements to be significant.
The
FASB
issued Statement of SFAS No. 160, “Noncontrolling Interest” (SFAS No. 160) in
December 2007. SFAS No. 160 clarifies the classification of
noncontrolling interests in consolidated statements of financial position and
the accounting for and reporting of transactions between the reporting entity
and holders of such noncontrolling interests. SFAS No. 160 is
effective as of the beginning of an entity’s first fiscal year that begins on or
after December 15, 2008 and is required to be adopted prospectively, except
for
the reclassification of noncontrolling interests to equity and the recasting
of
net income (loss) attributable to both the controlling and noncontrolling
interests, which are required to be adopted retrospectively. We plan
to adopt SFAS No. 160 effective January 1, 2009 and do not currently expect
the
impact on our financial statements to be significant.
OUTLOOK,
RISKS AND UNCERTAINTIES
Business
Combinations/Divestitures
We
believe that future acquisitions
that we make could significantly impact financial results. Financial
results most likely to be impacted include, but are not limited to, revenue,
gross margin, salaries and benefits, selling general and administrative
expenses, depreciation and amortization, interest expense, net income and our
debt level.
Revenue
We
believe that the performance of
the railroads and a severe or prolonged slow-down of the economy are the most
significant factors that could negatively influence our revenue growth
rate. Should there be further consolidation in the rail industry
causing a service disruption, we believe our intermodal business would likely
be
negatively impacted. Should there be a significant service
disruption, we expect that there may be some customers who would switch from
using our intermodal service to other transportation services. We
expect that these customers may choose to continue to utilize other services
even when intermodal service levels are restored. Other factors that
could negatively influence our growth rate include, but are not limited to,
the
elimination of fuel surcharges, the entry of new web-based competitors, customer
retention, inadequate drayage service and inadequate equipment
supply.
Gross
Margin
We
expect fluctuations in gross
margin as a percentage of revenue from quarter-to-quarter caused by various
factors including, but not limited to, changes in the transportation business
mix, trailer and container capacity, vendor pricing, fuel costs, intermodal
industry growth, intermodal industry service levels, accessorials, competition
and accounting estimates.
Salaries
and Benefits
We
estimate that salaries and
benefits as a percentage of revenue could fluctuate from quarter-to-quarter
as
there are timing differences between volume increases and changes in levels
of
staffing. Factors that could affect the percentage from staying in
the recent historical range include, but are not limited to, revenue growth
rates significantly higher or lower than forecasted, a management decision
to
invest in additional personnel to stimulate new or existing businesses, changes
in customer requirements, changes in our operating structure, achieving the
targets for our performance units and changes in railroad intermodal service
levels which could result in a lower or higher cost of labor per
move.
General
and Administrative
We
believe there are several factors
that could cause general and administrative expenses to fluctuate as a
percentage of revenue. As customer expectations and the competitive
environment require the development of web-based business interfaces and the
restructuring of our information systems and related platforms, we believe
there
could be significant expenses incurred, some of which would not be
capitalized. Other factors that could cause selling, general and
administrative expense to fluctuate include, but are not limited to, changes
in
insurance premiums and outside services expense.
Depreciation
and Amortization
We
estimate that depreciation and
amortization of property and equipment will decrease slightly in
2008.
Impairment
of Property and Equipment, Goodwill and Indefinite-Lived
Intangibles
On
an ongoing basis, we assess the
realizability of our assets. If, at any point during the year,
management determines that an impairment exists, the carrying amount of the
asset is reduced by the estimated impairment with a corresponding charge to
earnings. If it is determined that an impairment exists, management
estimates that the write down of specific assets could have a material adverse
impact on earnings.
Other
Income (Expense)
Factors
that could cause a change in
interest income include, but are not limited to, funding working capital needs,
funding capital expenditures, funding an acquisition and buying back
stock.
Item
7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
are exposed to market risk related
to changes in interest rates on our bank line of credit which may adversely
affect our results of operations and financial condition. We seek to
minimize the risk from interest rate volatility through our regular operating
and financing activities and when deemed appropriate, through the use of
derivative financial instruments. No derivative financial instruments
are outstanding at December 31, 2007. We do not use financial
instruments for trading purposes.
At
December 31, 2007, the Company had
no outstanding obligations under its bank line of credit
arrangement.
Item
8.
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY DATA
INDEX
TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
Report
of Independent Registered Public Accounting Firm
|
26
|
|
|
Consolidated
Balance Sheets – December 31, 2007 and December 31, 2006
|
27
|
|
|
Consolidated
Statements of Income – Years ended December 31, 2007,
December 31, 2006 and December 31, 2005
|
28
|
|
|
Consolidated
Statements of Stockholders’ Equity – Years ended December 31,
2007,
December
31, 2006 and December 31, 2005
|
29
|
|
|
Consolidated
Statements of Cash Flows – Years ended December 31, 2007,
December
31, 2006 and December 31, 2005
|
30
|
|
|
Notes
to Consolidated Financial Statements
|
31
|
|
|
Schedule
II – Valuation and Qualifying Accounts
|
S-1
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Stockholders of Hub Group, Inc.:
We
have audited the accompanying
consolidated balance sheets of Hub Group, Inc. as of December 31, 2007 and
2006,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31,
2007. Our audits also included the financial statement schedule
listed in the index at Item 15(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Hub Group, Inc. at December 31, 2007 and 2006, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007 in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As
described in Note 5 to the
consolidated financial statements, effective January 1, 2007, the Company
changed its method of accounting for uncertain tax positions to conform with
FIN
48, Accounting
for
Uncertainty in Income Taxes. As described in Note
1 to
the consolidated financial statements, effective January 1, 2006, the Company
changed its method of accounting for share-based payments to conform with FASB
Statement No. 123 (R), Share-Based
Payment.
We
also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
Hub Group, Inc.’s internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of Treadway Commission
and
our report dated February 19,
2008 expressed an unqualified opinion
thereon.
ERNST
&
YOUNG
LLP
Chicago,
Illinois
February
19,
2008
HUB
GROUP, INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
38,002 |
|
|
$ |
43,491 |
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
Trade,
net
|
|
|
160,944 |
|
|
|
158,284 |
|
Other
|
|
|
9,828 |
|
|
|
8,369 |
|
Prepaid
taxes
|
|
|
86 |
|
|
|
2,119 |
|
Deferred
taxes
|
|
|
5,044 |
|
|
|
3,433 |
|
Prepaid
expenses and other current assets
|
|
|
4,318 |
|
|
|
4,450 |
|
TOTAL
CURRENT ASSETS
|
|
|
218,222 |
|
|
|
220,146 |
|
|
|
|
|
|
|
|
|
|
Restricted
investments
|
|
|
5,206 |
|
|
|
3,017 |
|
Property
and equipment, net
|
|
|
29,662 |
|
|
|
26,974 |
|
Other
intangibles, net
|
|
|
7,056 |
|
|
|
7,502 |
|
Goodwill,
net
|
|
|
230,448 |
|
|
|
225,448 |
|
Other
assets
|
|
|
1,373 |
|
|
|
1,461 |
|
TOTAL
ASSETS
|
|
$ |
491,967 |
|
|
$ |
484,548 |
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
|
|
|
|
Trade
|
|
$ |
123,020 |
|
|
$ |
117,676 |
|
Other
|
|
|
6,683 |
|
|
|
7,783 |
|
Accrued
expenses
|
|
|
|
|
|
|
|
|
Payroll
|
|
|
16,446 |
|
|
|
18,294 |
|
Other
|
|
|
33,063 |
|
|
|
25,673 |
|
Related
party payable
|
|
|
5,000 |
|
|
|
5,000 |
|
TOTAL
CURRENT LIABILITIES
|
|
|
184,212 |
|
|
|
174,426 |
|
Non-current
liabilities
|
|
|
9,708 |
|
|
|
7,691 |
|
Deferred
taxes
|
|
|
47,148 |
|
|
|
43,587 |
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 2,000,000 shares
authorized; no shares issued or outstanding in 2007 and
2006
|
|
|
- |
|
|
|
- |
|
Common
stock
|
|
|
|
|
|
|
|
|
Class
A: $.01 par value; 97,337,700 shares authorized in
2007; 41,224,792 shares issued and 36,666,731 outstanding in 2007;
47,337,700 shares authorized in 2006; 41,224,792 shares issued and
38,943,122 outstanding in 2006
|
|
|
412 |
|
|
|
412 |
|
Class
B: $.01 par value; 662,300 shares authorized; 662,296 shares
issued and outstanding in 2007 and 2006
|
|
|
7 |
|
|
|
7 |
|
Additional
paid-in capital
|
|
|
176,657 |
|
|
|
179,203 |
|
Purchase
price in excess of predecessor basis, net of tax benefit of
$10,306
|
|
|
(15,458 |
) |
|
|
(15,458 |
) |
Retained
earnings
|
|
|
206,042 |
|
|
|
146,243 |
|
Treasury
stock; at cost, 4,558,061 shares in 2007 and 2,281,670 shares in
2006
|
|
|
(116,761 |
) |
|
|
(51,563 |
) |
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
250,899 |
|
|
|
258,844 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
491,967 |
|
|
$ |
484,548 |
|
The
accompanying notes to consolidated financial statements are an integral part
of
these statements.
HUB
GROUP, INC.
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,658,168 |
|
|
$ |
1,609,529 |
|
|
$ |
1,481,878 |
|
Transportation
costs
|
|
|
1,425,844 |
|
|
|
1,391,111 |
|
|
|
1,307,136 |
|
Gross
margin
|
|
|
232,324 |
|
|
|
218,418 |
|
|
|
174,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
95,678 |
|
|
|
95,152 |
|
|
|
83,392 |
|
General
and administrative
|
|
|
41,416 |
|
|
|
39,929 |
|
|
|
34,541 |
|
Depreciation
and amortization
|
|
|
4,490 |
|
|
|
6,101 |
|
|
|
8,905 |
|
Total
costs and expenses
|
|
|
141,584 |
|
|
|
141,182 |
|
|
|
126,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
90,740 |
|
|
|
77,236 |
|
|
|
47,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(108 |
) |
|
|
(115 |
) |
|
|
(124 |
) |
Interest
income
|
|
|
2,480 |
|
|
|
2,311 |
|
|
|
971 |
|
Other,
net
|
|
|
116 |
|
|
|
76 |
|
|
|
120 |
|
Total
other income (expense)
|
|
|
2,488 |
|
|
|
2,272 |
|
|
|
967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for income
taxes
|
|
|
93,228 |
|
|
|
79,508 |
|
|
|
48,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
33,429 |
|
|
|
31,803 |
|
|
|
19,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
59,799 |
|
|
|
47,705 |
|
|
|
29,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations of HGDS (including loss on disposal
of $70 in
2006)
|
|
|
- |
|
|
|
1,634 |
|
|
|
6,315 |
|
Provision
for income taxes
|
|
|
- |
|
|
|
653 |
|
|
|
2,545 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
981 |
|
|
|
3,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
59,799 |
|
|
$ |
48,686 |
|
|
$ |
32,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
1.55 |
|
|
$ |
1.19 |
|
|
$ |
0.73 |
|
Income
from discontinued operations
|
|
$ |
- |
|
|
$ |
0.03 |
|
|
$ |
0.10 |
|
Net
income
|
|
$ |
1.55 |
|
|
$ |
1.22 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
1.53 |
|
|
$ |
1.17 |
|
|
$ |
0.71 |
|
Income
from discontinued operations
|
|
$ |
- |
|
|
$ |
0.02 |
|
|
$ |
0.09 |
|
Net
income
|
|
$ |
1.53 |
|
|
$ |
1.19 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average number of shares outstanding
|
|
|
38,660 |
|
|
|
39,958 |
|
|
|
39,860 |
|
Diluted
weighted average number of shares outstanding
|
|
|
39,128 |
|
|
|
40,823 |
|
|
|
41,392 |
|
The
accompanying notes to consolidated financial statements are an integral part
of
these statements.
HUB
GROUP, INC
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
(in
thousands, except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A & B Common Stock Shares Outstanding
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
39,605,418 |
|
|
|
40,624,780 |
|
|
|
41,191,812 |
|
Exercise
of non-qualified stock options
|
|
|
- |
|
|
|
- |
|
|
|
692,516 |
|
Issuance
of restricted stock
|
|
|
- |
|
|
|
- |
|
|
|
2,760 |
|
Purchase
of treasury shares
|
|
|
(2,741,700 |
) |
|
|
(2,126,255 |
) |
|
|
(2,378,712 |
) |
Treasury
shares issued under restricted stock and stock options
exercised
|
|
|
465,309 |
|
|
|
1,106,893 |
|
|
|
1,116,404 |
|
Ending
balance
|
|
|
37,329,027 |
|
|
|
39,605,418 |
|
|
|
40,624,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A & B Common Stock Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
$ |
419 |
|
|
$ |
419 |
|
|
$ |
412 |
|
Issuance
of restricted stock and exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
Ending
balance
|
|
|
419 |
|
|
|
419 |
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
179,203 |
|
|
|
183,524 |
|
|
|
182,056 |
|
Equity
reclassification impact of adopting SFAS No. 123 (R)
|
|
|
- |
|
|
|
(6,259 |
) |
|
|
- |
|
Exercise
of non-qualified stock options
|
|
|
(6,668 |
) |
|
|
(12,516 |
) |
|
|
(7,663 |
) |
Share-based
compensation expense
|
|
|
3,853 |
|
|
|
3,405 |
|
|
|
- |
|
Tax
benefit of share-based compensation plans
|
|
|
3,952 |
|
|
|
12,337 |
|
|
|
8,523 |
|
Issuance
of restricted stock awards, net of forfeitures
|
|
|
(3,683 |
) |
|
|
(1,288 |
) |
|
|
608 |
|
Ending
balance
|
|
|
176,657 |
|
|
|
179,203 |
|
|
|
183,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
Price in Excess of Predecessor Basis, Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
(15,458 |
) |
|
|
(15,458 |
) |
|
|
(15,458 |
) |
Ending
balance
|
|
|
(15,458 |
) |
|
|
(15,458 |
) |
|
|
(15,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
146,243 |
|
|
|
97,557 |
|
|
|
64,611 |
|
Net
income
|
|
|
59,799 |
|
|
|
48,686 |
|
|
|
32,946 |
|
Ending
balance
|
|
|
206,042 |
|
|
|
146,243 |
|
|
|
97,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
- |
|
|
|
(6,259 |
) |
|
|
(4,685 |
) |
Issuance
of restricted stock awards, net of forfeitures
|
|
|
- |
|
|
|
- |
|
|
|
(3,751 |
) |
Compensation
expense related to restricted stock awards
|
|
|
- |
|
|
|
- |
|
|
|
2,177 |
|
Equity
reclassification impact of adopting SFAS No. 123 (R)
|
|
|
- |
|
|
|
6,259 |
|
|
|
- |
|
Ending
balance
|
|
|
- |
|
|
|
- |
|
|
|
(6,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
(51,563 |
) |
|
|
(17,708 |
) |
|
|
- |
|
Purchase
of treasury shares
|
|
|
(76,309 |
) |
|
|
(49,622 |
) |
|
|
(33,245 |
) |
Issuance
of restricted stock and exercise of stock options
|
|
|
11,111 |
|
|
|
15,767 |
|
|
|
15,537 |
|
Ending
balance
|
|
|
(116,761 |
) |
|
|
(51,563 |
) |
|
|
(17,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
$ |
250,899 |
|
|
$ |
258,844 |
|
|
$ |
242,075 |
|
The
accompanying notes to consolidated financial statements are an integral part
of
these statements.
HUB
GROUP, INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(in
thousands)
|
|
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
59,799 |
|
|
$ |
47,705 |
|
|
$ |
29,176 |
|
Adjustments
to reconcile income from continuing operations to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,195 |
|
|
|
8,170 |
|
|
|
9,319 |
|
Deferred
taxes
|
|
|
3,523 |
|
|
|
690 |
|
|
|
18,382 |
|
Compensation
expense related to share-based compensation plans
|
|
|
3,853 |
|
|
|
3,405 |
|
|
|
2,148 |
|
Gain
on sale of assets
|
|
|
(160 |
) |
|
|
(131 |
) |
|
|
(271 |
) |
Changes
in operating assets and liabilities excluding effects of
purchase
transaction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
investments
|
|
|
(2,189 |
) |
|
|
(1,630 |
) |
|
|
(1,387 |
) |
Accounts
receivable, net
|
|
|
(4,119 |
) |
|
|
393 |
|
|
|
(18,931 |
) |
Prepaid
taxes
|
|
|
2,033 |
|
|
|
3,317 |
|
|
|
(6,151 |
) |
Prepaid
expenses and other current assets
|
|
|
132 |
|
|
|
(297 |
) |
|
|
722 |
|
Other
assets
|
|
|
88 |
|
|
|
(837 |
) |
|
|
200 |
|
Accounts
payable
|
|
|
4,223 |
|
|
|
5,698 |
|
|
|
3,039 |
|
Accrued
expenses
|
|
|
4,441 |
|
|
|
8,496 |
|
|
|
8,497 |
|
Deferred
compensation
|
|
|
1,761 |
|
|
|
1,608 |
|
|
|
(1,534 |
) |
Net
cash provided by operating activities
|
|
|
80,580 |
|
|
|
76,587 |
|
|
|
43,209 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of equipment
|
|
|
725 |
|
|
|
394 |
|
|
|
579 |
|
Purchases
of property and equipment
|
|
|
(10,197 |
) |
|
|
(8,372 |
) |
|
|
(4,078 |
) |
Cash used in acquisition of Comtrak, Inc.
|
|
|
(5,000 |
) |
|
|
(39,942 |
) |
|
|
- |
|
Proceeds
from the disposal of discontinued operations
|
|
|
- |
|
|
|
12,203 |
|
|
|
- |
|
Net
cash used in investing activities
|
|
|
(14,472 |
) |
|
|
(35,717 |
) |
|
|
(3,499 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from stock options exercised
|
|
|
760 |
|
|
|
1,963 |
|
|
|
4,738 |
|
Purchase
of treasury stock
|
|
|
(76,309 |
) |
|
|
(49,622 |
) |
|
|
(33,245 |
) |
Excess
tax benefits from share-based compensation
|
|
|
3,952 |
|
|
|
12,337 |
|
|
|
- |
|
Net
cash used in financing activities
|
|
|
(71,597 |
) |
|
|
(35,322 |
) |
|
|
(28,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by operating activities of discontinued
operations
|
|
|
- |
|
|
|
1,848 |
|
|
|
8,416 |
|
Cash
flows used in investing activities of discontinued
operations
|
|
|
- |
|
|
|
(38 |
) |
|
|
(292 |
) |
Net
cash provided by discontinued operations
|
|
|
- |
|
|
|
1,810 |
|
|
|
8,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(5,489 |
) |
|
|
7,358 |
|
|
|
19,327 |
|
Cash
and cash equivalents beginning of year
|
|
|
43,491 |
|
|
|
36,133 |
|
|
|
16,806 |
|
Cash
and cash equivalents end of year
|
|
$ |
38,002 |
|
|
$ |
43,491 |
|
|
$ |
36,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
106 |
|
|
$ |
114 |
|
|
$ |
124 |
|
Income
taxes
|
|
$ |
22,192 |
|
|
$ |
16,801 |
|
|
$ |
6,811 |
|
The
accompanying notes to consolidated financial statements are an integral
part of these statements.
|
|
HUB
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1.
Description of Business and Summary of Significant Accounting
Policies
Business: Hub
Group, Inc. (“we”, “us” or “our”) provides intermodal transportation services
utilizing primarily third party arrangements with railroads and drayage
companies. We also arrange for transportation of freight by truck and
perform logistics and drayage services.
Principles
of
Consolidation: The consolidated financial statements include
our accounts and all entities in which we have more than a 50% equity ownership
or otherwise exercise unilateral control. All significant
intercompany balances and transactions have been eliminated.
Cash
and Cash
Equivalents: We consider as cash equivalents all highly liquid
instruments with an original maturity of three months or less. We
invest our cash overnight in commercial paper of which $33.0 million and $37.0
million was outstanding at December 31, 2007 and 2006,
respectively.
Accounts
Receivable and Allowance
for Uncollectible Accounts: In the normal course of business,
we extend credit to customers after a review of each customer’s credit
history. An allowance for uncollectible trade accounts has been
established through an analysis of the accounts receivable aging, an assessment
of collectibility based on historical trends and an evaluation of the current
economic conditions. To be more specific, we reserve a portion of
every account balance that has aged over one year, a portion of certain
customers in bankruptcy and account balances specifically identified as
uncollectible. The allowance is reported on the balance sheet in net
accounts receivable. Actual collections of accounts receivable could
differ from management’s estimates due to changes in future economic, industry
or customer financial conditions. Our reserve for uncollectible
accounts was approximately $5.5 million and $6.3 million at December 31, 2007
and 2006, respectively. Recoveries of receivables previously charged
off are recorded when received.
Property
and
Equipment: Property and equipment are stated at
cost. Depreciation of property and equipment is computed using the
straight-line and various accelerated methods at rates adequate to depreciate
the cost of the applicable assets over their expected useful
lives: building and improvements, 1 to 8 years; leasehold
improvements, the shorter of useful life or lease term; computer equipment
and
software, 3 to 5 years; furniture and equipment, 3 to 11 years; and
transportation equipment and automobiles, 5 to 10
years. Direct costs related to internally developed software projects
are capitalized and amortized over their expected useful life on a straight-line
basis not to exceed five years. Interest is capitalized on qualifying
assets under development for internal use. Maintenance and repairs
are charged to operations as incurred and major improvements are
capitalized. The cost of assets retired or otherwise disposed of and
the accumulated depreciation thereon are removed from the accounts with any
gain
or loss realized upon sale or disposal charged or credited to
operations. We review long-lived assets for impairment when events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. In the event that the undiscounted future cash flows
resulting from the use of the asset group is less than the carrying amount,
an
impairment loss equal to the excess of the assets carrying amount over its
fair
value is recorded.
Goodwill: Goodwill
represents the excess of purchase price over the fair market value of net assets
acquired in connection with our business combinations. Under
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets” (“Statement 142”), goodwill and intangible assets that have
indefinite useful lives are not amortized but are subject to annual impairment
tests.
We
review
goodwill and other indefinite-lived intangibles for impairment on an annual
basis as of November 1, or whenever events or changes in circumstances indicate
the carrying amount of goodwill or other intangibles may not be
recoverable. We utilize a third-party independent valuation firm to
assist in performing the necessary valuations to be used in the impairment
testing. These valuations are based on market capitalization,
discounted cash flow analysis or a combination of both
methodologies. The assumptions used in the valuations include
expectations regarding future operating performance, discount rates, control
premiums and other factors which are subjective in nature. Actual
cash flows from operations could differ from management’s estimates due to
changes in business conditions, operating performance and economic
conditions. Should estimates differ materially from actual results,
we may be required to record impairment charges in the future.
Fair
Value of Financial
Instruments: The carrying value of cash and cash equivalents,
accounts receivable and accounts payable approximates fair value at December
31,
2007 due to their short-term nature.
Concentration
of Credit
Risk: Our financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash equivalents
and
accounts receivable. We place our cash and temporary investments with
high quality financial institutions. We primarily serve customers
located throughout the United States with no significant concentration in any
one region. No one customer accounted for more than 5% of revenue in
2007, 2006 or 2005. We review a customer’s credit history before
extending credit. In addition, we routinely assess the financial
strength of our customers and, as a consequence, believe that our trade accounts
receivable risk is limited.
Revenue
Recognition: Revenue is recognized at the time 1) persuasive
evidence of an arrangement exists, 2) services have been rendered, 3) the sales
price is fixed and determinable and 4) collectibility is reasonably
assured. In accordance with EITF 91-9, revenue and related
transportation costs are recognized based on relative transit
time. Further, we report our revenue on a gross basis in accordance
with the criteria in EITF 99-19, “Reporting Revenue Gross as a Principal versus
Net as an Agent.” We are the primary obligor as we are responsible
for providing the service desired by the customer. Our customers view
us as responsible for fulfillment including the acceptability of the
service. Services requirements may include, for example, on-time
delivery, handling freight loss and damage claims, setting up appointments
for
pick up and delivery and tracing shipments in transit. We have
discretion in setting sales prices and as a result, the amount we earn
varies. In addition, we have the discretion to select our vendors
from multiple suppliers for the services ordered by our
customers. Finally, we have credit risk for our
receivables. These three factors, discretion in setting prices,
discretion in selecting vendors and credit risk, further support reporting
revenue on a gross basis.
Deferred
Income
Taxes: Deferred income taxes are recognized for the future tax
effects of temporary differences between financial and income tax reporting
using tax rates in effect for the years in which the differences are expected
to
reverse. We believe that it is more likely than not that our deferred
tax assets will be realized with the exception of $0.2 million related to state
tax net operating losses for which a valuation allowance has been
established. In the event the probability of realizing the deferred
tax assets do not meet the more likely than not threshold in the future, a
valuation allowance would be established for the deferred tax assets deemed
unrecoverable.
Accounting
for Income Taxes:
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”,
which is an interpretation of SFAS No. 109, Accounting for Income
Taxes. We adopted FIN 48 effective January 1, 2007. FIN 48
clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. In addition, FIN 48 clearly
scopes out income taxes from Financial Accounting Standards Board Statement
No.
5, “Accounting for Contingencies”.
New
Pronouncements: In September 2006, the FASB issued Statement
of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS
No. 157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. In February 2008, the FASB deferred
the effective date of SFAS No. 157 for one year for all nonfinancial assets
and
nonfinancial liabilities, except for those items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). In addition, certain leasing transactions accounted
for under SFAS No. 13, “Accounting for Leases”, are now excluded from the scope
of SFAS No. 157. We adopted SFAS No. 157 effective January 1,
2008. There was no cumulative effect recorded upon adoption as of
January 1, 2008 and we do not expect the impact on our financial statements
in
subsequent reporting periods to be significant.
In
February 2007, the FASB issued SFAS No. No. 159, “Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS 159
permits entities to voluntarily choose to measure many financial instruments
and
certain other items at fair value. SFAS No. 159 is effective
beginning January 1, 2008, but we have decided not to adopt this optional
standard at this time.
The
FASB
issued Statement of SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R))
in December 2007. SFAS No. 141(R) requires the acquiring entity in a
business combination to record all assets acquired and liabilities assumed
at
their respective acquisition-date fair values including contingent
consideration. In addition SFAS No. 141(R) changes the recognition of
assets acquired and liabilities assumed arising from preacquisition
contingencies and requires the expensing of acquisition-related costs as
incurred. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after January 1,
2009. We plan to adopt SFAS No. 141(R) effective January 1, 2009 and
do not currently expect the impact on our financial statements to be
significant.
The
FASB
issued Statement of SFAS No. 160, “Noncontrolling Interest” (SFAS No. 160) in
December 2007. SFAS No. 160 clarifies the classification of
noncontrolling interests in consolidated statements of financial position and
the accounting for and reporting of transactions between the reporting entity
and holders of such noncontrolling interests. SFAS No. 160 is
effective as of the beginning of an entity’s first fiscal year that begins on or
after December 15, 2008 and is required to be adopted prospectively, except
for
the reclassification of noncontrolling interests to equity and the recasting
of
net income (loss) attributable to both the controlling and noncontrolling
interests, which are required to be adopted retrospectively. We plan
to adopt SFAS No. 160 effective January 1, 2009 and do not currently expect
the
impact on our financial statements to be significant.
Earnings
Per Common
Share: Basic earnings per common share are based on the
average quarterly weighted average number of Class A and Class B shares of
common stock outstanding. Diluted earnings per common share are
adjusted for the assumed exercise of dilutive stock options and for restricted
stock. In computing the per share effect of the assumed
exercise of stock options, funds which would have been received from the
exercise of options, including tax benefits assumed to be realized, are
considered to have been used to purchase shares at current market prices, and
the resulting net additional shares are included in the calculation of weighted
average shares outstanding. The dilutive effect of restricted stock
and stock options is computed using the treasury method.
Stock
based
Compensation: Prior to January 1, 2006, we accounted for our
share-based compensation plans under the recognition and measurement provisions
of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
interpretations, as permitted by Statement of Financial Accounting Standard
(SFAS) No. 123 “Accounting for Stock-Based Compensation.” No
stock-option based employee compensation cost was recognized in the income
statement prior to 2006, as all stock options granted had an exercise price
equal to the market value of the underlying common stock on the date of
grant. Effective January 1, 2006, we adopted the fair value
recognition provisions of FASB Statement No. 123 (R) “Share-Based Payment” (SFAS
No. 123 (R)), using the modified-prospective transition method. Under
that transition method, compensation cost recognized in 2006 includes: (a)
compensation costs for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated
in
accordance with the original provisions of SFAS No. 123 and (b) compensation
cost for all share-based payments granted subsequent to January 1, 2006, based
on the grant-date fair value estimated in accordance with the provisions of
SFAS
No. 123 (R). Results for prior periods have not been
restated. We have not granted any stock options since
2003.
We
have
elected to calculate our initial pool of excess benefits under FASB Staff
Position 123 (R)-3 (“FSP”). Prior to the adoption of SFAS No. 123 (R), we
presented all benefits of tax deductions resulting from the exercise of
share-based compensation as operating cash flows in the Statement of Cash
Flows. Beginning on January 1, 2006, we changed our cash flow
presentation in accordance with the FSP which requires benefits of tax
deductions in excess of the compensation cost recognized (excess tax benefits)
to be classified as a financing cash in-flow and an operating cash
out-flow. The results for the year ended December 31, 2007 and 2006
include $4.0 million and $12.3 million of excess tax benefits, respectively,
as
a financing cash in-flow and an operating cash out-flow.
The
following table illustrates the effect on the net income and net income per
share if we had applied the fair value recognition provisions of SFAS No. 123,
to share-based employee compensation during the year ended December 31, 2005
(in
thousands, except per share data):
|
|
Year Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
Income
from continuing operations, as reported
|
|
$ |
29,176 |
|
Income
from discontinued operations, as reported
|
|
|
3,770 |
|
Total
net income, as reported
|
|
$ |
32,946 |
|
Add: Total
share–based compensation included in net income, net of related tax
effects
|
|
|
1,300 |
|
Deduct: Total
share-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects
|
|
|
(1,600 |
)
|
Income
from continuing operations, pro forma
|
|
$ |
28,876 |
|
Income
from discontinued operations, pro forma
|
|
|
3,770 |
|
Total
net income, pro forma
|
|
$ |
32,646 |
|
Earnings
per share:
|
|
|
|
|
Basic
from continuing operations, as reported
|
|
$ |
0.73 |
|
Basic
from discontinued operations, as reported
|
|
$ |
0.10 |
|
Basic
— pro forma from continuing operations
|
|
$ |
0.72 |
|
Basic
— pro forma from discontinued operations
|
|
$ |
0.10 |
|
Diluted
from continuing operations, as reported
|
|
$ |
0.71 |
|
Diluted
from discontinued operations, as reported
|
|
$ |
0.09 |
|
Diluted
— pro forma from continuing operations
|
|
$ |
0.70 |
|
Diluted
— pro forma from discontinued operations
|
|
$ |
0.09 |
|
Use
of
Estimates: The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expense during
the reporting period. Significant estimates include the allowance for
doubtful accounts and cost of purchased transportation. Actual
results could differ from those estimates.
Reclassifications:
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
NOTE
2.
Capital
Structure
We
have
authorized common stock comprised of Class A Common Stock and Class B Common
Stock. The rights of holders of Class A Common Stock and Class B
Common Stock are identical, except each share of Class B Common Stock entitles
its holder to approximately 80 votes, while each share of Class A Common Stock
entitles its holder to one vote. We have authorized 2,000,000 shares
of preferred stock.
NOTE
3.
Earnings Per Share
The
following is a reconciliation of our earnings per share (in thousands, except
for per share data):
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
December
31, 2007
|
|
|
December
31, 2006
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per
Share Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Per
Share Amount
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
59,799 |
|
|
|
38,660 |
|
|
$ |
1.55 |
|
|
$ |
47,705 |
|
|
|
39,958 |
|
|
$ |
1.19 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
38,660 |
|
|
|
- |
|
|
|
981 |
|
|
|
39,958 |
|
|
|
0.03 |
|
Net
Income
|
|
$ |
59,799 |
|
|
|
38,660 |
|
|
$ |
1.55 |
|
|
$ |
48,686 |
|
|
|
39,958 |
|
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and restricted stock
|
|
|
|
|
|
|
468 |
|
|
|
|
|
|
|
|
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
59,799 |
|
|
|
39,128 |
|
|
$ |
1.53 |
|
|
$ |
47,705 |
|
|
|
40,823 |
|
|
$ |
1.17 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
39,128 |
|
|
|
- |
|
|
|
981 |
|
|
|
40,823 |
|
|
|
0.02 |
|
Net
Income
|
|
$ |
59,799 |
|
|
|
39,128 |
|
|
$ |
1.53 |
|
|
$ |
48,686 |
|
|
|
40,823 |
|
|
$ |
1.19 |
|
|
|
Year
Ended
|
|
|
|
December
31, 2005
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per
Share Amount
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
29,176 |
|
|
|
39,860 |
|
|
$ |
0.73 |
|
Income
from discontinued operations
|
|
|
3,770 |
|
|
|
39,860 |
|
|
|
0.10 |
|
Net
Income
|
|
$ |
32,946 |
|
|
|
39,860 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and restricted stock
|
|
|
|
|
|
|
1,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
29,176 |
|
|
|
41,392 |
|
|
$ |
0.71 |
|
Income
from discontinued operations
|
|
|
3,770 |
|
|
|
41,392 |
|
|
|
0.09 |
|
Net
Income
|
|
$ |
32,946 |
|
|
|
41,392 |
|
|
$ |
0.80 |
|
NOTE
4.
Property and Equipment
Property
and equipment consist of the following (in thousands):
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Building
and
improvements
|
|
$ |
54 |
|
|
$ |
54 |
|
Leasehold
improvements
|
|
|
1,372 |
|
|
|
1,037 |
|
Computer
equipment and
software
|
|
|
49,304 |
|
|
|
47,156 |
|
Furniture
and
equipment
|
|
|
7,894 |
|
|
|
7,614 |
|
Transportation
equipment
|
|
|
25,204 |
|
|
|
20,512 |
|
|
|
|
83,828 |
|
|
|
76,373 |
|
Less: Accumulated
depreciation and amortization
|
|
|
(54,166 |
)
|
|
|
(49,399 |
)
|
Property
and Equipment,
net
|
|
$ |
29,662 |
|
|
$ |
26,974 |
|
Depreciation
expense was $6.8 million, $7.8 million and $9.3 million for 2007, 2006 and
2005,
respectively.
NOTE
5.
Income Taxes
The
following is a reconciliation of our effective tax rate to the federal statutory
tax rate:
|
Years
Ended December 31, |
|
2007
|
|
2006 |
|
2005 |
U.S.
federal statutory
rate
|
35.0%
|
|
35.0%
|
|
35.0%
|
State
taxes, net of federal
benefit
|
3.4
|
|
3.5
|
|
3.3
|
Nondeductible
expenses
|
0.5
|
|
1.5
|
|
1.1
|
Provision
for (reversal of)
valuation allowance
|
0.1
|
|
(0.3)
|
|
0.4
|
IRS
settlement
|
(1.4)
|
|
-
|
|
-
|
Illinois
law
change
|
(1.3)
|
|
-
|
|
-
|
Other
|
(0.4)
|
|
0.3
|
|
0.5
|
Net
effective
rate
|
35.9%
|
|
40.0%
|
|
40.3%
|
We
and
our subsidiaries file both unitary and separate company state income tax
returns.
The
following is a summary of our provision for income taxes (in
thousands):
|
|
Years
Ended December 31, |
|
Current
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Federal
|
|
$ |
26,234 |
|
|
$ |
27,986 |
|
|
$ |
6,419 |
|
State
and
local
|
|
|
3,672 |
|
|
|
3,078 |
|
|
|
983 |
|
|
|
|
29,906 |
|
|
|
31,064 |
|
|
|
7,402 |
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,000 |
|
|
|
332 |
|
|
|
11,301 |
|
State
and
local
|
|
|
(477 |
)
|
|
|
407 |
|
|
|
992 |
|
|
|
|
3,523 |
|
|
|
739 |
|
|
|
12,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision
|
|
$ |
33,429 |
|
|
$ |
31,803 |
|
|
$ |
19,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following
is a summary of our deferred tax assets and liabilities (in
thousands):
|
|
Years
Ended December 31,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
Reserve
for uncollectible accounts
receivable
|
|
$ |
1,939 |
|
|
$ |
2,295 |
|
Accrued
compensation
|
|
|
5,394 |
|
|
|
4,273 |
|
Other
reserves
|
|
|
2,480 |
|
|
|
1,611 |
|
Current
deferred tax assets
|
|
|
9,813 |
|
|
|
8,179 |
|
|
|
|
|
|
|
|
|
|
Operating
loss
carryforwards
|
|
|
430 |
|
|
|
790 |
|
Other
|
|
|
216 |
|
|
|
37 |
|
Income
tax basis in excess of
financial basis of goodwill
|
|
|
2,383 |
|
|
|
3,123 |
|
Less
valuation allowance
|
|
|
(163 |
) |
|
|
(248 |
) |
Long-term
deferred tax assets
|
|
|
2,866 |
|
|
|
3,702 |
|
Total
deferred tax assets
|
|
$ |
12,679 |
|
|
$ |
11,881 |
|
|
|
|
|
|
|
|
|
|
Prepaids
|
|
$ |
(1,245 |
) |
|
$ |
(1,258 |
) |
Other
receivables
|
|
|
(3,524 |
) |
|
|
(3,488 |
) |
Current
deferred tax liabilities
|
|
|
(4,769 |
) |
|
|
(4,746 |
) |
|
|
|
|
|
|
|
|
|
Property
and
equipment
|
|
|
(1,006 |
) |
|
|
(2,940 |
) |
Goodwill
|
|
|
(49,008 |
) |
|
|
(44,349 |
) |
Long-term
deferred tax liabilities
|
|
|
(50,014 |
) |
|
|
(47,289 |
) |
Total
deferred tax liabilities
|
|
$ |
(54,783 |
) |
|
$ |
(52,035 |
) |
Our
state
net operating losses of $0.4 million expire between December 31, 2012 and
December 31, 2023. Management believes it is more likely than not
that the deferred tax assets will be realized with the exception of $0.2 million
related to state net operating losses for which a valuation allowance has been
established.
Effective
January 1, 2007, we adopted
Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes”. Although the
implementation of FIN 48 did not impact the amount of our liability for
unrecognized tax benefits, we reclassified our liability for unrecognized
tax benefits from deferred tax liabilities to non-current liabilities to conform
with the balance sheet presentation requirements of FIN 48. As of
January 1, 2007, the amount of unrecognized tax benefits, including $2.1 million
($1.3 million net of income tax) of
accrued interest expense related to
unrecognized tax benefits, was $5.3 million.
During
its examination of our 1997
federal income tax return, the Internal Revenue Service (“IRS”) proposed to
reclassify our allocation of a significant amount of tax basis in fixed assets
to non-amortizable intangibles. The dispute was ultimately resolved in the
fourth quarter of 2007 after the IRS Office of Appeals reviewed the dispute
and
permitted the statute of limitations to lapse.
The
settlement reduced our 2007 income
tax provision by $1.3 million and resulted in a reclassification
of our liability
for unrecognized tax benefits
to deferred tax liability. As of December 31, 2007, the amount of
unrecognized tax benefits was $0.3
million, of which $0.2
million would decrease our income tax
provision, if recognized. A reconciliation of the beginning and
ending amount of unrecognized tax benefits (excluding accrued interest expense)
is as follows:
|
|
(in
millions)
|
|
Balance
at January 1,
2007
|
|
$ |
3.2 |
|
Reductions
as a result of a lapse
of the applicable statue of limitations
|
|
|
(2.9 |
) |
Balance
at December 31,
2007
|
|
$ |
0.3 |
|
|
|
|
|
|
We
recognize interest expense and
penalties related to unrecognized tax benefits in our provision for income
taxes. At January 1, 2007, accrued interest was $2.1 million ($1.3
million net of income tax). During the nine months ended September
30, 2007, an additional $0.2 million of interest expense, net of tax, was
recognized in our provision for income taxes. During the fourth
quarter of 2007, $1.5 million of accrued interest, net of income tax, was
reversed as a consequence of the settlement of our dispute with the
IRS. This resulted in a reduction to our effective tax rate of 1.4%
for the twelve months ended December 31, 2007.
During
the third
quarter of 2007, the State of Illinois enacted tax legislation which impacts
us
by modifying how we apportion taxable income to Illinois. The new
legislation resulted in a reduction of our net deferred liabilities and a
credit
to our provision for state income taxes of approximately $1.2 million in
the
third quarter. This resulted in a reduction to our effective tax rate
of 1.3% for the twelve months ended December 31, 2007. We also
estimate that this change will save approximately $1.2
million in state income taxes we
would otherwise have to pay for the year ending December 31,
2008.
Hub
Group, Inc. and its subsidiaries are
subject to income tax in the U.S. federal jurisdiction and numerous state
jurisdictions. The IRS has completed examinations of our federal
income tax returns through 2004. Although no examinations are in
effect currently, tax years 2004 through 2006 generally remain open to
examination by the major tax jurisdictions to which we are
subject.
NOTE
6.
Long-Term Debt and Financing Arrangements
On
March
23, 2005, we entered into a revolving credit agreement that provides for
unsecured borrowings of up to $40.0 million. The interest rate ranges
from LIBOR plus 0.75% to 1.25% or Prime plus 0.5%. The revolving line
of credit expires on March 23, 2010. The financial covenants require
a minimum net worth of $175.0 million and a cash flow leverage ratio of not
more
than 2.0 to 1.0. The commitment fees charged on the unused line of
credit are between 0.15% and 0.25%.
On
February 21, 2006, we amended the revolving credit agreement to provide for
unsecured borrowing up to $50.0 million. No other terms of the
agreement were amended.
Our
unused and available borrowings under our bank revolving line of credit at
December 31, 2007 and December 31, 2006 were $47.2 million and $48.2 million,
respectively. We were in compliance with our debt covenants at
December 31, 2007.
We
have
standby letters of credit that expire from 2008 to 2012. As of
December 31, 2007, our letters of credit were $2.8 million.
NOTE
7.
Rental Expense, User Charges and Commitments
Minimum
annual rental commitments, at December 31, 2007, under non-cancelable operating
leases, principally for real estate, containers and equipment, are payable
as
follows (in thousands):
2008
|
|
$ |
19,514 |
|
2009
|
|
|
17,815 |
|
2010
|
|
|
15,461 |
|
2011
|
|
|
13,930 |
|
2012
|
|
|
12,297 |
|
2013
and thereafter
|
|
|
5,451 |
|
|
|
$ |
84,468 |
|
Total
rental
expense included in general and administrative expense, which relates primarily
to real estate, was approximately $7.7 million, $8.1 million and $7.6 million
for 2007, 2006 and 2005, respectively. Many of the real estate leases
contain renewal options and escalation clauses which require payments of
additional rent to the extent of increases in the related operating
costs. We straight-line rental expense in accordance with Statement
of Financial Accounting Standards No. 13, paragraph 15 and Financial Accounting
Standards Board Technical Bulletin 85-3.
In
March
2006, we entered into a ten year lease agreement for a building and property
(Comtrak’s Memphis facility) with a related party, the President of
Comtrak. Rent paid under this lease agreement included in general and
administrative expense totaled $0.7 million and $0.6 million for the years
ended
December 31, 2007 and 2006, respectively. The annual lease payments
escalate by less than 1% per year.
We
incur rental
expense for our leased containers and tractors that are included in
transportation costs and totaled $9.9 million, $8.1 million, and $3.0 million
for 2007, 2006 and 2005, respectively.
We
incur
charges for use of a fleet of rail owned chassis and dedicated rail owned
containers on the Burlington Northern Santa Fe, Norfolk Southern and Union
Pacific which are included in transportation costs. Such charges were
$45.5 million, $42.8 million and $33.8 million for the years ended December
31,
2007, 2006 and 2005, respectively. At December 31, 2007, we have the
ability to return the majority of the containers and pay for the chassis only
when we are using them under these agreements. As a result, no
minimum commitments related to these chassis and containers have been included
in the table above. At December 31, 2007, Accrued Expenses Other includes $11.4
million related to chassis charges.
In
February 2008, we entered into an equipment purchase contract with Singamas
Management Services, Ltd. and Singamas North America, Inc. We agreed
to purchase 1,000 fifty-three foot dry freight steel domestic containers for
approximately $10.0 million. We expect delivery of the 1,000 units
during the summer of 2008. We plan to finance these containers with
operating leases. These commitments are not included in the table
above since the arrangements have not yet been finalized.
NOTE
8.
Stock-Based Compensation Plans
In
1996, we adopted a
Long-Term Incentive Plan (the “1996 Incentive Plan”). The number of
shares of Class A Common Stock reserved for issuance under the 1996 Incentive
Plan was 1,800,000. In 1997, we adopted a second Long-Term Incentive
Plan (the “1997 Incentive Plan”). The number of shares of Class A
Common Stock reserved for issuance under the 1997 Incentive Plan was
600,000. In 1999 we adopted a third Long-Term Incentive Plan (the
“1999 Incentive Plan”). The number of shares of Class A Common Stock
reserved for issuance under the 1999 Incentive Plan was 2,400,000. In
2002, we adopted a fourth Long-Term Incentive Plan (the “2002 Incentive
Plan”). The number of shares of Class A Common Stock reserved for
issuance under the 2002 Incentive Plan was 2,400,000. In 2003, we
amended our 2002 Incentive Plan to add an additional 2,000,000 shares of Class
A
Common Stock that are reserved for issuance. In 2007, we amended our
2002 Incentive Plan to add an additional 1,000,000 shares of Class A common
Stock that are reserved for issuance. Under the 1996, 1997, 1999 and
2002 Incentive Plans, stock options, stock appreciation rights, restricted
stock
and performance units may be granted for the purpose of attracting and
motivating our key employees and non-employee directors. The options
granted to non-employee directors vest ratably over a three-year period and
expire 10 years after the date of grant. The options granted to
employees vest over a range of three to five years and expire 10 years after
the
date of grant. Restricted stock vests over a three to five year
period. At December 31, 2007, 1,806,474 shares are available for
future grant. Generally, when stock options are exercised, either new
shares are issued or shares are issued out of treasury.
We
generally recognize the cost of share-based awards on a straight-line basis
over
the vesting period of the award including an estimate of
forfeitures. Share-based compensation expense for the years ended
December 31, 2007, 2006 and 2005 was $3.9 million, $3.4 million and $2.1 million
or $2.5 million, $2.0 million and $1.3 million, net of taxes,
respectively. Share-based compensation is included in salaries and
benefits in the accompanying statements of income.
The
following table summarizes the stock option activity for the year ended December
31, 2007:
Stock
Options
|
|
Shares
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
754,596 |
|
|
$ |
2.24 |
|
|
|
|
|
|
|
Options
exercised
|
|
|
(307,264 |
) |
|
$ |
2.45 |
|
|
|
|
|
|
|
Options
forfeited
|
|
|
(6,000 |
) |
|
$ |
4.69 |
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
441,332 |
|
|
$ |
2.06 |
|
|
|
4.42 |
|
|
$ |
10,820,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2007
|
|
|
387,732 |
|
|
$ |
2.11 |
|
|
|
4.30 |
|
|
$ |
9,488,994 |
|
Intrinsic
value for stock options is defined as the difference between the current market
value and the grant price. The total intrinsic value of options
exercised during the years ended December 31, 2007, 2006 and 2005 was $8.3
million, $21.3 million and $18.5 million, respectively. Cash received
from stock options exercised during the years ended December 31, 2007, 2006
and
2005 was $0.8 million, $2.0 million and $4.7 million,
respectively. The tax benefit realized for tax deductions from stock
options exercised for the years ended December 31, 2007, 2006 and 2005 was
$3.2
million, $7.9 million and $6.8 million, respectively.
The
following table summarizes information about options outstanding at December
31,
2007:
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
|
Number
of Shares
|
|
|
Weighted
Avg. Remaining Contractual Life
|
|
|
Weighted
Avg. Exercise Price
|
|
|
Number
of Shares
|
|
|
Weighted
Avg. Exercise Price
|
|
$ |
1.22
to $1.22 |
|
|
|
47,200 |
|
|
|
5.10
|
|
|
$ |
1.22 |
|
|
|
21,600 |
|
|
$ |
1.22 |
|
$ |
1.22
to $1.30 |
|
|
|
204,332 |
|
|
|
4.96
|
|
|
$ |
1.30 |
|
|
|
204,332 |
|
|
$ |
1.30 |
|
$ |
1.30
to $1.82 |
|
|
|
56,000 |
|
|
|
5.04
|
|
|
$ |
1.53 |
|
|
|
44,000 |
|
|
$ |
1.51 |
|
$ |
1.82
to $2.70 |
|
|
|
73,600 |
|
|
|
4.54
|
|
|
$ |
2.33 |
|
|
|
57,600 |
|
|
$ |
2.25 |
|
$ |
2.70
to $7.04 |
|
|
|
60,200 |
|
|
|
1.35
|
|
|
$ |
5.47 |
|
|
|
60,200 |
|
|
$ |
5.47 |
|
$ |
1.22
to $7.04 |
|
|
|
441,332 |
|
|
|
4.42
|
|
|
$ |
2.06 |
|
|
|
387,732 |
|
|
$ |
2.11 |
|
The
following
table summarizes the non-vested restricted stock activity for the year ended
December 31, 2007:
Non-vested
restricted stock
|
|
Shares
|
|
|
Weighted
Average Grant Date Fair Value
|
|
|
|
|
|
|
|
|
Non-vested
January 1, 2007
|
|
|
313,966 |
|
|
$ |
17.48 |
|
Granted
|
|
|
210,807 |
|
|
$ |
27.77 |
|
Vested
|
|
|
(135,321 |
) |
|
$ |
15.80 |
|
Forfeited
|
|
|
(53,662 |
) |
|
$ |
20.84 |
|
Non-vested
at December 31, 2007
|
|
|
335,790 |
|
|
$ |
24.08 |
|
During
2007, we granted 200,163 shares of restricted stock to certain employees and
10,644 shares of restricted stock to outside directors with a weighted average
grant date fair value of $27.77. The stock vests over a three year
period.
During
2006, we granted 106,819 shares of restricted stock to certain employees with
a
weighted average grant date fair value of $21.58. The stock vests
over a three year period.
During
2005, we granted 223,460 shares of restricted stock to certain employees and
10,644 shares of restricted stock to outside directors with a weighted average
grant date fair value of $16.68. The stock vests over a three to five year
period.
The
fair
value of non-vested restricted stock is equal to the market price of our stock
at the date of grant.
The
total
fair value of restricted shares vested during the years ended December 31,
2007,
2006 and 2005 was $3.9 million, $13.3 million and $9.2 million,
respectively.
As
of
December 31, 2007, there was $6.0 million of unrecognized compensation cost
related to non-vested share-based compensation that is expected to be recognized
over a weighted average period of 1.37 years.
In
May
2006, the Board of Directors granted certain of our officers 593,542 performance
units. Due to attrition, there are currently 529,026 performance
units outstanding. The performance units entitle the recipients to
receive restricted shares of our Class A Common Stock contingent upon the
achievement of an operating income earnings target. The aggregate
operating income for the three year period ending December 31, 2008 must meet
a
specified target amount in order for these performance units to be earned and
converted to restricted stock. Should the employees earn restricted
stock under this program, the restricted stock will be granted in early 2009
and
then vests in equal installments as of the first business day of January in
each
of 2010, 2011 and 2012 provided the officer remains an employee on each of
the
vesting dates. The maximum amount that would be recorded as salary
expense assuming the target is met is $12.3 million, which is calculated based
on the stock price on the date the performance units were granted which was
$23.25. We did not record expense related to the performance units
during 2007.
During
January 2008, we granted 204,374 shares of restricted stock to certain employees
and 10,644 shares of restricted stock to outside directors with a weighted
average grant date fair value of $25.77. The stock vests in equal installments
over a five year period beginning a year from the grant date except for the
stock for the outside Board of Directors, which will vest over a three year
period.
NOTE
9.
Business Segment
We
have
no separately reportable segments. Under the enterprise wide
disclosure requirements, we report revenue (in thousands), for Intermodal,
Brokerage and Logistics Services as follows:
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
$ |
1,206,364 |
|
|
$ |
1,172,566 |
|
|
$ |
1,079,798 |
|
Brokerage
|
|
|
318,834 |
|
|
|
306,332 |
|
|
|
266,545 |
|
Logistics
|
|
|
132,970 |
|
|
|
130,631 |
|
|
|
135,535 |
|
Total
revenue from continuing operations
|
|
$ |
1,658,168 |
|
|
$ |
1,609,529 |
|
|
$ |
1,481,878 |
|
NOTE
10.
Employee Benefit Plans
We
had
two profit-sharing plans and trusts in 2007 and 2006, and one in 2005 under
section 401(k) of the Internal Revenue Code. At our discretion, we
partially match qualified contributions made by employees to the
plan. We expensed approximately $1.9 million, $1.7 million and $1.1
million related to these plans in 2007, 2006 and 2005,
respectively.
In
January 2005, we established the Hub Group, Inc. Nonqualified Deferred
Compensation Plan (the “Plan”) to provide added incentive for the retention of
certain key employees. Under the Plan, participants can elect to
defer certain compensation. Accounts will grow on a tax-deferred
basis to the participant. Restricted investments included in the
consolidated balance sheet represent the fair value of the mutual funds and
other security investments related to the Plan at December 31, 2007 and December
31, 2006. Both realized and unrealized gains and losses, which have
not been material, are included in income and expense and offset the change
in
the deferred compensation liability. We provide a 50% match on the
first 6% of employee compensation deferred under the Plan, with a maximum match
equivalent to 3% of base salary. In addition, we have a legacy
deferred compensation plan. There are no new contributions being made
into this legacy plan. We expensed $1.3 million, $1.1 million and
$0.6 million related to these plans in 2007, 2006 and 2005,
respectively. The liabilities related to these plans at
December 31, 2007 and 2006 were $10.4 million and $8.3 million,
respectively.
NOTE
11.
Legal Matters
We
are a
party to litigation incident to our business, including claims for personal
injury and/or property damage, freight lost or damaged in transit, improperly
shipped or improperly billed. Some of the lawsuits to which we are
party to are covered by insurance and are being defended by our insurance
carriers. Some of the lawsuits are not covered by insurance and we
are defending them ourselves. Management does not believe that the
outcome of this litigation will have a materially adverse effect on our
financial position or results of operations.
NOTE
12.
Stock Buy Back Plans
During
the fourth quarter of 2003, the Board of Directors authorized the purchase
of up
to 1,000,000 shares of our Class A Common Stock from time to
time. The timing of the program was determined by financial and
market conditions. During the fourth of quarter of 2003, we purchased
80,800 shares for $0.3 million. We purchased an additional 386,000
shares for $2.8 million in 2004. During the first quarter of
2005, the Board of Directors terminated the prior buy back plan and authorized
the purchase of up to $30.0 million worth of our Class A Common
Stock. During the second quarter of 2005, we completed the authorized
purchase of $30.0 million worth of our Class A Common Stock.
On
August
22, 2005, our Board of Directors authorized the purchase of up to $45.0 million
of our Class A Common Stock. During the third quarter of 2006, we
completed the authorized purchase of $45.0 million of Class A Common
Stock.
On
October 26, 2006, our Board of Directors authorized the purchase of up to $75.0
million of our Class A Common Stock. During the fourth quarter of
2007, we completed the authorized purchase of $75.0 million of Class A Common
Stock. We intend to hold the repurchased shares in treasury for
future use.
On
November 14, 2007, our Board of Directors authorized the purchase of up to
$75.0
million of our Class A Common Stock. The authorization expires June
30, 2009 and we have not yet purchased any shares pursuant to this
plan. We may make purchases from time to time as market conditions
warrant and any repurchased shares are expected to be held in treasury for
future use.
The
following table displays the number of shares purchased and available under
the
plans in 2007:
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid Per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
|
|
|
Maximum
Value of Shares that May Yet Be Purchased Under the Plans (in
000’s)
|
|
January
1 to
March
31
|
|
|
408,205 |
|
|
$ |
30.62 |
|
|
|
408,205 |
|
|
$ |
62,500 |
|
April
1 to
June
30
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
62,500 |
|
July
1 to
September
30
|
|
|
740,015 |
|
|
$ |
32.72 |
|
|
|
740,015 |
|
|
$ |
38,285 |
|
October
1 to
December
31
|
|
|
1,547,818 |
|
|
$ |
24.73 |
|
|
|
1,547,818 |
|
|
$ |
75,000 |
|
Total
|
|
|
2,696,038 |
|
|
$ |
27.82 |
|
|
|
2,696,038 |
|
|
$ |
75,000 |
|
This
table excludes 45,662 shares ($1.3 million) purchased during the year by the
Company related to employee withholding upon vesting of restricted
stock.
NOTE
13.
Stock Splits
The
Board
of Directors approved a two-for-one stock split which was paid on May 11,
2005. All shares and per-share amounts have been retroactively
restated to give effect to the two-for-one stock split which was affected in
the
form of a 100% stock dividend. In addition, all options have been
retroactively restated for the stock split in accordance with the terms of
the
incentive plans. Each of our Class A stockholders and Class B
stockholders received one Class A share on each share of Class A Common Stock
and each share of Class B Common Stock held by them on the record date in
connection with the stock split. In accordance with the terms of our
Certificate of Incorporation, the number of votes held by each stockholder
of
Class B Common Stock was proportionately adjusted in connection with this stock
dividend.
The
Board
of Directors approved a two-for-one stock split which was paid on June 6,
2006. All shares and per-share amounts have been retroactively
restated to give effect to the two-for-one stock split which was affected in
the
form of a 100% stock dividend. In addition, all options and
performance units have been retroactively restated for the stock split in
accordance with the terms of the incentive plans. Each of our Class A
stockholders and Class B stockholders received one Class A share on each share
of Class A Common Stock and each share of Class B Common Stock held by them
on
the record date in connection with the stock split. In accordance
with the terms of our Certificate of Incorporation, the number of votes held
by
each stockholder of Class B Common Stock was adjusted in connection with this
stock dividend such that each share of Class B Common Stock now entitles its
holder to approximately 80 votes. Each share of Class A Common Stock
entitles its holder to one vote.
NOTE
14.
Acquisition
At
the
close of business on February 28, 2006, we acquired certain assets of Comtrak,
Inc. (“Comtrak”), a transportation company whose services include primarily rail
and international drayage for the intermodal sector. Comtrak was
established in 1983 and is headquartered in Memphis,
Tennessee. Comtrak utilizes company drivers and third-party owner
operators to serve its customers. Comtrak had net sales of $87.1
million, including sales to Hub of $8.6 million, for the year ended December
31,
2005. The acquisition is consistent with our strategic plan to
increase the amount of local trucking (or drayage) we
perform. Comtrak performs drayage for the international intermodal
market and this transaction provided us with an immediate entry into this
growing market.
We
paid
the $38.0 million purchase price plus a working capital adjustment of $1.2
million, which was finalized during 2006, in accordance with the terms of the
Asset Purchase Agreement, from available cash. There is an earn-out
mechanism for 2006 and 2007, which has been achieved for $10.0 million in total
and is based on Comtrak’s 2006 and 2007 EBITDA as defined in the Asset Purchase
Agreement. The additional contingent consideration of $5.0 million
for both 2006 and 2007 has been added to the purchase price and has been applied
to goodwill. The $5.0 million for 2006 has been paid. The
$5.0 million for 2007 is due to the seller, the current President of Comtrak,
and is included in the related party payable in the accompanying consolidated
balance sheet. The results of operations of Comtrak are included in
our consolidated statements of income for the period March 1, 2006 to December
31, 2006 and the year ended December 31, 2007.
The
Comtrak acquisition was accounted for as a purchase business combination in
accordance with Statement of Financial Accounting Standards No. 141 “Business
Combinations.” Assets acquired and liabilities assumed were recorded
in the accompanying consolidated balance sheet at their fair values as of March
1, 2006.
Pro
forma
results including the acquisition at the beginning of the periods presented
are
not materially different than actual results.
The
following table summarizes the allocation of the total purchase price to the
assets acquired and liabilities assumed as of the date of the acquisition (in
thousands):
|
|
March
1, 2006
|
|
Accounts
receivable
|
|
|
|
Trade,
net
|
|
$ |
9,012 |
|
Other
|
|
|
428 |
|
Prepaid
expenses and other current assets
|
|
|
294 |
|
Property
and equipment
|
|
|
13,507 |
|
Goodwill
|
|
|
12,298 |
|
Other
intangible assets
|
|
|
7,894 |
|
Total
assets acquired
|
|
$ |
43,433 |
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
Trade
|
|
$ |
832 |
|
Other
|
|
|
1,166 |
|
Accrued
expenses
|
|
|
|
|
Payroll
|
|
|
944 |
|
Other
|
|
|
549 |
|
Total
liabilities assumed
|
|
$ |
3,491 |
|
|
|
|
|
|
Net
assets acquired
|
|
$ |
39,942 |
|
|
|
|
|
|
Direct
acquisition costs
|
|
|
766 |
|
|
|
|
|
|
Purchase
price
|
|
$ |
39,176 |
|
The
property
and equipment’s useful lives range from 6 months to 11 years. The
above allocation is based on a valuation using management’s estimates and
assumptions and the use of an independent appraisal. We expect the
amortization of all goodwill for tax purposes to be deductible over 15 years
and
for book purposes it has an indefinite life.
The
components of the “Other intangible assets” listed in the above table as of the
acquisition date are as follows (in thousands):
|
|
Amount
|
|
|
Accumulated
Amortization
|
|
|
Balance
at
December
31, 2007
|
|
Life
|
Relationships
with owner operators
|
|
$ |
647 |
|
|
$ |
(198 |
) |
|
$ |
449 |
|
6
years
|
Backlog/open
orders
|
|
|
20 |
|
|
|
(20 |
) |
|
|
- |
|
1
month
|
Trade
name
|
|
|
2,904 |
|
|
|
- |
|
|
|
2,904 |
|
Indefinite
|
Customer
relationships
|
|
|
3,823 |
|
|
|
(467 |
) |
|
|
3,356 |
|
15 years
|
Information
technology
|
|
|
500 |
|
|
|
(153 |
) |
|
|
347 |
|
6
years
|
Total
|
|
$ |
7,894 |
|
|
$ |
(838 |
) |
|
$ |
7,056 |
|
|
The
above
intangible assets will be amortized using the straight-line
method. Amortization expense for the year ended December 31, 2007 was
$0.4 million.
Amortization
expense for the next five years is as follows (in
thousands):
2008 |
|
$ |
445 |
|
2009 |
|
|
445 |
|
2010 |
|
|
445 |
|
2011 |
|
|
445 |
|
2012 |
|
|
286 |
|
NOTE
15.
Discontinued Operations
On
May 1,
2006, we entered into a definitive agreement to sell certain assets of HGDS
to a
third party. As specified in the Asset Purchase Agreement, the buyer
assumed $4.5 million of liabilities and we received a cash payment of $12.2
million. The current and comparative period results of HGDS have been
reported as “discontinued operations” in our Consolidated Financial Statements.
These discontinued operations generated diluted earnings per share of $0.02
and
$0.09 for the years ended December 31, 2006 and 2005, respectively.
The
financial results of HGDS included in discontinued operations are as follows
(in
thousands):
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
19,194 |
|
|
$ |
49,621 |
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
|
|
|
|
|
|
before
income taxes
|
|
|
1,634 |
|
|
|
6,315 |
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
653 |
|
|
|
2,545 |
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
$ |
981 |
|
|
$ |
3,770 |
|
The
total
assets sold to and liabilities assumed by the purchaser of HGDS on May 1,
2006:
|
|
|
May
1, 2006 |
|
Assets |
|
|
|
|
|
Accounts
receivable-trade, net |
|
$ |
8,845 |
|
|
Prepaid
expenses and other current assets |
|
|
149 |
|
|
Property
and equipment, net |
|
|
670 |
|
|
Goodwill,
net |
|
|
7,026 |
|
|
Other
assets |
|
|
44 |
|
Total
assets of discontinued operations |
|
$ |
16,734 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Accounts
payable-trade
|
|
$ |
3,619 |
|
|
Accounts
payable-other
|
|
|
64 |
|
|
Accrued
expenses-payroll
|
|
|
449 |
|
|
Accrued
expenses-other
|
|
|
330 |
|
Total liabilities
of discontinued operations |
|
$ |
4,462 |
|
NOTE
16.
Selected Quarterly Financial Data (Unaudited)
The
following table sets forth selected quarterly financial data for each of the
quarters in 2007 and 2006 (in thousands, except per share amounts):
|
|
|
|
|
|
Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Year
Ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
393,297 |
|
|
$ |
401,565 |
|
|
$ |
417,842 |
|
|
$ |
445,464 |
|
Gross
margin
|
|
|
56,661 |
|
|
|
57,763 |
|
|
|
57,510 |
|
|
|
60,390 |
|
Income
from continuing
operations
|
|
|
11,419 |
|
|
|
13,775 |
|
|
|
16,608 |
|
|
|
17,997 |
|
Net
income
|
|
$ |
11,419 |
|
|
$ |
13,775 |
|
|
$ |
16,608 |
|
|
$ |
17,997 |
|
Basic
earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.29 |
|
|
$ |
0.35 |
|
|
$ |
0.43 |
|
|
$ |
0.48 |
|
Net
Income
|
|
$ |
0.29 |
|
|
$ |
0.35 |
|
|
$ |
0.43 |
|
|
$ |
0.48 |
|
Diluted
earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.29 |
|
|
$ |
0.35 |
|
|
$ |
0.42 |
|
|
$ |
0.47 |
|
Net
Income
|
|
$ |
0.29 |
|
|
$ |
0.35 |
|
|
$ |
0.42 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
|
|
First
(2)
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Year
Ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
356,764 |
|
|
$ |
395,296 |
|
|
$ |
432,009 |
|
|
$ |
425,460 |
|
Gross
margin
|
|
|
47,373 |
|
|
|
55,491 |
|
|
|
57,336 |
|
|
|
58,218 |
|
Income
from continuing
operations
|
|
|
8,473 |
|
|
|
12,219 |
|
|
|
13,494 |
|
|
|
13,519 |
|
Income
from discontinued
operations (1)
|
|
|
657 |
|
|
|
324 |
|
|
|
- |
|
|
|
- |
|
Net
income
|
|
$ |
9,130 |
|
|
$ |
12,543 |
|
|
$ |
13,494 |
|
|
$ |
13,519 |
|
Basic
earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.21 |
|
|
$ |
0.30 |
|
|
$ |
0.34 |
|
|
$ |
0.35 |
|
Income
from discontinued operations
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
- |
|
|
|
- |
|
Net
Income
|
|
$ |
0.23 |
|
|
$ |
0.31 |
|
|
$ |
0.34 |
|
|
$ |
0.35 |
|
Diluted
earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.21 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
$ |
0.34 |
|
Income
from discontinued operations
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
- |
|
|
|
- |
|
Net
Income
|
|
$ |
0.22 |
|
|
$ |
0.30 |
|
|
$ |
0.33 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) HGDS
disposed of May 1, 2006
(2) Comtrak
was acquired February 28, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
Item
9A.
|
CONTROLS
AND PROCEDURES
|
MANAGEMENT’S
REPORT ON DISCLOSURE CONTROLS AND PROCEDURES
As
of
December 31, 2007, an evaluation was carried out under the supervision and
with
the participation of our management, including our Chief Executive Officer
and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Rule 13a-15(e) and Rule 15d-15(f) under the Securities
Exchange Act of 1934. Based upon this evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that these disclosure controls
and
procedures were effective.
No
significant changes were made in our internal control over financial reporting
during the fourth quarter of 2007 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Because
of its inherent limitations, internal controls over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate controls
over financial reporting as defined in Rule 13a-15(f) of the Exchange
Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2007. Based on criteria
established in Internal Control-Integrated Framework issued by the Committee
of
Sponsoring Orgnizations of the Treadway Commission (the COSO criteria),
management believes our internal control over financial reporting was effective
as of December 31, 2007.
Management
believes, however, that a control system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the control
system are met, and no evaluation controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have
been
detected.
Ernst
& Young LLP, an independent registered public accounting firm, who audited
and reported on the consolidated financial statements, included in this report,
has issued an attestation report on the Company’s internal control over
financial reporting.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL
OVER
FINANCIAL
REPORTING
The
Board
of Directors and Stockholders of Hub Group, Inc.:
We
have
audited Hub Group, Inc.’s internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Hub Group Inc.’s management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on
the company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In
our
opinion, Hub Group, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Hub Group,
Inc. as of December 31, 2007 and 2006, and the related consolidated statements
of income, stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2007 of Hub Group, Inc., and our report dated
February 19, 2008 expressed an unqualified opinion thereon.
Ernst
& Young LLP
Chicago,
Illinois
February
19, 2008
Item
9B.
OTHER
INFORMATION
None.
PART
III
Item
10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE
The
sections entitled “Election of Directors” and “Ownership of the Capital Stock of
the Company” appearing in our proxy statement for our annual meeting of
stockholders to be held on May 14, 2008, sets forth certain information with
respect to our directors and Section 16 compliance and is incorporated herein
by
reference. Certain information with respect to persons who are or may
be deemed to be our executive officers is set forth under the caption “Executive
Officers of the Registrant” in Part I of this report.
Our
code
of ethics can be found on our website at www.hubgroup.com.
Item
11.
EXECUTIVE COMPENSATION
The
section entitled “Compensation of Directors and Executive Officers” appearing in
our proxy statement for our annual meeting of stockholders to be held on May
14,
2008, sets forth certain information with respect to the compensation of our
management and is incorporated herein by reference.
Item
12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED
STOCKHOLDER
MATTERS
The
sections entitled “Ownership of the Capital Stock of the Company” appearing in
our proxy statement for our annual meeting of stockholders to be held on May
14,
2008, sets forth certain information with respect to the ownership of our Common
Stock and is incorporated herein by reference.
Equity
Compensation Plan
Information-
The
following chart contains certain
information regarding the Company’s Long-Term Incentive
Plans:
Plan
Category
|
Number
of securities
to
be issued
upon
exercise of
outstanding
options,
warrants
and rights
(a)
1
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected in column (a)) 2
|
Equity
compensation
plans
approved by
security
holders
|
441,332
|
$2.06
|
1,806,474
|
Equity
compensation
plans
not approved
by
security holders
|
--
|
--
|
--
|
Total
|
441,332
|
$2.06
|
1,806,474
|
1
This
represents securities to be issued upon exercise of stock options. We
have no outstanding warrants or stock appreciation rights. This does
not include any securities to be issued if the 529,026 performance units granted
in 2006 are earned.
2
The
number of securities reserved for future issuance under equity compensation
plans has been reduced by 529,026 shares of restricted stock in connection
with
the performance units granted in 2006 that will be delivered upon successful
achievement of certain performance goals. To the extent that those
shares of restricted stock are not delivered because the award is forfeited
or
cancelled, such shares shall not be deemed to have been delivered for purposes
of determining the securities remaining available for future issuance and shall
be available for future grant.
Item
13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
sections entitled “Certain Transactions” and “Meetings and Committees of the
Board” appearing in our proxy statement for the annual meeting of our
stockholders to be held on May 14, 2008, set forth certain information with
respect to certain business relationships and transactions between us and our
directors and officers and the independence of our directors and is incorporated
herein by reference.
Item
14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
section entitled “Principal
Accountant Fees and Services” appearing in our proxy statement for our annual
meeting of stockholders to be held on May 14, 2008, sets forth certain
information with respect to certain fees we have paid to our principal
accountant for services and is incorporated herein by
reference.
Item
15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements
The
following consolidated financial statements of the Registrant are included
under
Item 8 of this Form 10-K:
Report
of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets - December 31, 2007 and December 31, 2006
Consolidated
Statements of Income - Years ended December 31, 2007, December 31, 2006 and
December 31, 2005
Consolidated
Statements of Stockholders’ Equity - Years ended December 31, 2007, December 31,
2006 and December 31, 2005
Consolidated
Statements of Cash Flows - Years ended December 31, 2007, December 31, 2006
and
December 31, 2005
Notes
to
Consolidated Financial Statements
(b)
Financial Statement Schedules
The
following financial statement schedules of Hub Group, Inc. are filed as part
of
this report and should be read in conjunction with the consolidated financial
statements of Hub Group, Inc.:
Page
II. Valuation
and qualifying accounts and reserves
……………………………………………………………….. S-1
All
other
schedules are omitted because they are not required, are not applicable, or
the
required information is shown in the consolidated financial statements or notes
thereto.
(c)
Exhibits
The
exhibits included as part of this Form 10-K are set forth in the Exhibit Index
immediately preceding such Exhibits and are incorporated herein by
reference.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
HUB
GROUP,
INC. |
|
|
|
|
|
Date:
February 21, 2008
|
By:
|
/s/
David P. Yeager |
|
|
|
Name:
David P. Yeager |
|
|
|
Title:
Chief Executive Officer and
Vice Chairman
|
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons in the capacities and on the dates
indicated:
|
Title
|
Date
|
|
|
|
/s/Phillip
C.
Yeager
Phillip
C. Yeager
|
Chairman
and Director
|
February
21, 2008
|
/s/
David P.
Yeager
David
P. Yeager
|
Vice
Chairman, Chief Executive Officer and Director
|
February
21, 2008
|
/s/
Mark A. Yeager
Mark
A. Yeager
|
President,
Chief Operating Officer and Director
|
February
21, 2008
|
/s/
Terri A. Pizzuto
Terri
A. Pizzuto
|
Executive
Vice President, Chief Financial Officer and Treasurer (Principal
Financial
and Accounting Officer)
|
February
21, 2008
|
/s/
Charles R. Reaves
Charles
R. Reaves
|
Director
|
February
21, 2008
|
/s/
Martin P. Slark
Martin
P. Slark
|
Director
|
February
21, 2008
|
/s/
Gary D. Eppen
Gary
D. Eppen
|
Director
|
February
21, 2008
|
SCHEDULE
II
|
|
|
|
|
|
|
|
|
HUB
GROUP, INC.
|
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
Charged
to
|
Charged
|
|
Balance
at
|
|
|
|
Beginning
|
Costs
&
|
To
Other
|
|
End
|
|
|
|
of
Year
|
Expenses
|
Accounts
(1)
|
Deductions
(2)
|
of
Year
|
Year
Ended December 31:
|
|
|
|
|
|
|
Allowance
for uncollectible trade accounts
|
|
|
|
|
|
|
2007
|
$ 6,299,000
|
$ (63,000)
|
$ (780,000)
|
$
-
|
$ 5,456,000
|
|
|
2006
|
$ 6,815,000
|
$ 138,000
|
$ 644,000
|
$ (1,298,000)
|
$ 6,299,000
|
|
|
2005
|
$ 6,869,000
|
$ 476,000
|
$ 1,135,000
|
$ (1,665,000)
|
$ 6,815,000
|
|
|
|
|
|
|
|
|
|
Deferred
tax valuation allowance
|
|
|
|
|
|
|
|
Balance
at
|
Charged
to
|
Charged
|
Transferred
to
|
Balance
at
|
|
|
|
Beginning
|
Costs
&
|
To
Other
|
Other
|
End
|
|
|
|
of
Year
|
Expenses
|
Accounts
|
Accounts
(3)
|
of
Year
|
|
|
2007
|
$ 248,000
|
$ 81,000
|
$ -
|
$ (166,000)
|
$ 163,000
|
|
|
2006
|
$ 489,000
|
$ (241,000)
|
$ -
|
$ -
|
$ 248,000
|
|
|
2005
|
$ 271,000
|
$ 218,000
|
$ -
|
$ -
|
$ 489,000
|
(1)
|
Expected
customer account adjustments charged to revenue and write-offs, net
of
recoveries
|
(2)
|
Reserve
adjustment
|
(3) |
Establish
FIN 48 liability |
INDEX
TO EXHIBITS
Number
Exhibit
|
3.1
|
Amended
Certificate of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 to the Registrant’s quarterly report on Form 10-Q filed
July 23, 2007, File No. 000-27754)
|
|
3.2
|
By-Laws
of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant’s registration statement on Form S-1, File No. 33-90210)
|
|
10.1
|
Amended
and Restated Limited Partnership Agreement of Hub City Canada, L.P.
(incorporated by reference to Exhibit 10.2 to the Registrants report
on
Form 10-K dated March 26, 1997 and filed March 27, 1997, File No
000-27754)
|
|
10.2
|
Stockholders'
Agreement (incorporated by reference to Exhibit 10.7 to the Registrant’s
report on Form 10-K dated March 26, 1997 and filed March 27, 1997,
File
No. 000-27754)
|
|
10.3
|
Letter
from the Registrant to Thomas M. White dated June 4, 2002 (incorporated
by
reference to Exhibit 10.28 to the Registrant’s report on Form 10-K dated
March 12, 2003 and filed on March 13, 2003, File No. 000-27754)
|
|
10.4
|
Hub
Group’s Nonqualified Deferred Compensation Plan Basic Plan Document as
amended and restated as of January 1, 2008.
|
|
10.5
|
Hub
Group’s Nonqualified Deferred Compensation Plan Adoption Agreement as
amended and restated as of January 1, 2008.
|
|
10.6
|
Description
of Executive Officer cash compensation for 2008
|
|
10.7
|
Director
compensation for 2008
|
|
10.8
|
Hub
Group’s 2002 Long Term Incentive Plan (as amended and restated effective
May 7, 2007) (incorporated by reference from Appendix B to the
Registrant’s definitive proxy statement on Schedule 14A dated and filed
March 26, 2007)
|
|
10.9
|
$40
million Credit Agreement dated
as of March 23, 2005 among the Registrant, Hub City Terminals, Inc.
and
Harris Trust and Savings Bank (incorporated by reference to
Exhibit 10.1 to the Registrant’s report on Form 8-K dated March 23, 2005
and filed March 25, 2005, File No.
000-27754)
|
|
10.10
|
Lease
Agreement dated as of May
10, 2005, between Banc of America Leasing & Capital, LLC and Hub City
Terminals, Inc., with form of Schedule thereto (incorporated by reference
to Exhibit 10.1 to the Registrant’s report on Form 8-K dated May 10, 2005
and filed May 16, 2005, File No.
000-27754)
|
|
10.11
|
Guaranty
of Corporation, dated as
of May 10, 2005, made by Registrant to, and for the benefit of, Banc
of
America Leasing & Capital, LLC (incorporated by reference to Exhibit
10.2 to the Registrant’s report on Form 8-K dated May 10, 2005 and filed
May 16, 2005, File No.
000-27754)
|
|
10.12
|
Asset
Purchase Agreement, dated
January 19, 2006, by and among Hub Group, Inc., Comtrak, Inc. and
Michael
J. Bruns (incorporated by reference to Exhibit 10.1 to the Registrant’s
report on Form 8-K dated January 19, 2006 and filed January 25, 2006,
File
No. 000-27754)
|
|
10.13
|
Amendment
to the $40 million
Credit Agreement among the Registrant, Hub City Terminals, Inc. and
Harris
Trust and Savings Bank dated February 21, 2006. (incorporated
by reference to Exhibit 10.16 to the Registrant’s report on Form 10-K for
the year ended December 31, 2005 and filed February 27, 2006, File
No.
000-27754)
|
|
10.14
|
Form
of Hub Group, Inc. 2006
Performance Unit Award Statement (incorporated by reference to Exhibit
10.1 to the Registrant’s report on Form 8-K dated May 22, 2006 and filed
May 26, 2006, File No.
000-27754)
|
|
10.15
|
Form
of Terms of Restricted Stock
Award under Hub Group, Inc. 2002 Long-Term Incentive Plan (incorporated
by
reference to Exhibit 10.2 to the Registrant’s report on Form 8-K dated May
22, 2006 and filed May 26, 2006, File No.
000-27754)
|
|
10.16
|
Equipment
Purchase Contract, dated as of March 8, 2007, by and between Hub
City
Terminals, Inc., Singamas
Management Services, Ltd. and Singamas North America, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrant’s report on
Form 8-K filed March 12, 2007, File No. 000-27754)
|
|
10.17
|
Asset
Purchase Agreement, dated
June 6, 2007, by and among Hub Group, Inc., Comtrak Logistics, Inc.,
Hub
City Terminals, Inc., Interdom Partners, Commercial Cartage, Inc.,
Pride Logistics, L.L.C. and the other parties signatory thereto
(incorporated by reference to Exhibit 10.1 to the Registrant’s report on
Form 8-K filed June 8, 2007, File No. 000-27754)
|
|
10.18
|
Termination
letter, dated July 9,
2007, by and among Comtrak Logistics, Inc., Hub City Terminals, Inc.,
Interdom Partners, Commercial Cartage, Inc. and Pride Logistics,
L.L.C.
(incorporated by
reference to Exhibit 10.1to the Registrant’s report on
Form
8-K filed July 10, 2007, File No.
000-27754)
|
|
14
|
Hub
Group’s Code of Business Conduct and Ethics (incorporated by reference
from Exhibit 99.2 to the Registrant’s report on Form 10-K dated March 12,
2003 and filed on March 13, 2003, File No. 000-27754)
|
|
21
|
Subsidiaries
of the Registrant
|
|
23.1
|
Consent
of Ernst & Young LLP
|
|
31.1
|
Certification
of David P. Yeager, Vice Chairman and Chief Executive Officer,
Pursuant to
Rule 13a-14(a) promulgated under the Securities Exchange Act
of 19
|
|
31.2
|
Certification
of Terri A. Pizzuto, Executive Vice President, Chief Financial
Officer and
Treasurer, Pursuant to Rule 13a-14(a) promulgated under the
Securities
Exchange Act of 1934
|
|
32.1
|
Certification
of David P. Yeager and Terri A. Pizzuto, Chief Executive Officer
and Chief
Financial Officer respectively, Pursuant to 18 U.S.C. Section
1350
|
EXHIBIT
10.6
Hub
Group, Inc.
Description
of Executive Officer Cash Compensation
For
2008
Annual
Cash
Compensation
Base
Salary
Set
forth
below are the base salaries of the Chief Executive Officer and each of the
four
most highly compensated executive officers in 2007 effective January 1,
2008. The Company considers various factors in assigning executive
officers to specific salary ranges, including job content, level of
responsibility, accountability, and the competitive compensation
market. On an annual basis, all executive officers’ salaries are
reviewed and adjusted to reflect individual performance and position within
their respective ranges.
Bonus
Plan
Executive
officers are eligible for annual performance-based awards under the Company’s
bonus plan, as are all salaried employees. For 2007, goals were
weighted upon achievement of targeted levels of earnings per share and, for
some
executives, upon achievement of personal goals. The goals for 2008
will also be weighted.
Restricted
Stock
The
Company makes periodic grants of restricted stock to executive
officers. The grants of restricted stock made in early 2008 vest in
equal installments over a five year period from the grant
date.
David
P. Yeager
Vice
Chairman and Chief Executive Officer
Base
2008
$574,867
Mark
A. Yeager
President
and Chief Operating Officer
Base
Terri
A. Pizzuto
Executive
Vice President, Chief Financial Officer and Treasurer
Base
2008
$300,000
David
Marsh
Chief
Marketing Officer
Base
2008
$300,000
Donald
G. Maltby
Executive
Vice President-Logistics
Base
EXHIBIT
10.7
Hub
Group, Inc.
Directors’
Compensation For 2008
Directors’
Compensation
Each
non-employee director receives an annual retainer fee of $60,000 in 2008, paid
in quarterly installments. In addition, expenses are paid for
attendance at each Committee meeting. Directors who are also officers or
employees of the Company receive no compensation for duties performed as a
director.
Stock
Plan
The
Company
makes periodic grants of restricted stock to the directors. In
connection with their 2008 compensation package, each independent director
received 3,548 shares of restricted stock in January 2008. These
shares vest over three years.
EXHIBIT
21
Subsidiaries
of Hub Group, Inc.
SUBSIDIARIES
|
JURISDICTION
OF INCORPORATION/ORGANIZATION
|
Hub
City Terminals, Inc.
|
Delaware
|
Hub
Group Atlanta, LLC
|
Delaware
|
Hub
Group Canada, L.P.
|
Delaware
|
Hub
City Texas, L.P.
|
Delaware
|
Hub
Group Associates, Inc.
|
Illinois
|
Hub
Group Distribution Services, LLC
|
Illinois
|
Quality
Services L.L.C.
|
Missouri
|
Hub
Chicago Holdings, Inc.
|
Delaware
|
Hub
Group Transport, LLC
|
Delaware
|
Hub
Freight Services, Inc.
|
Delaware
|
Comtrak
Logistics, Inc.
|
Delaware
|
EXHIBIT
23.1
Consent
of Independent Registered Public Accounting Firm
We
consent to the incorporation by reference in the Registration Statements (Forms
S-8 Nos. 333-146951, 333-115576 and 333-103845) pertaining to the Hub Group,
Inc. 2002 Long Term Incentive Plan, Form S-8 No. 333-107745 pertaining to the
Hub Group Employee Profit Sharing Plan and Trust, Form S-8 No. 333-33006
pertaining to the Hub Group, Inc. 1999 Long-Term Incentive Plan and Form S-8
No.
333-06327 pertaining to the Hub Group, Inc. 1996 Long-Term Incentive Plan of
our
reports dated February 19, 2008, with respect to the consolidated financial
statements and schedule of Hub Group, Inc., and the effectiveness of internal
control over financial reporting of Hub Group, Inc., included in this Annual
Report (Form 10-K) for the year ended December 31, 2007.
/s/
Ernst & Young
LLP
Chicago,
Illinois
February
19, 2008